India's government is investigating whether local units of US internet giants Google and Yahoo may have violated the country's foreign exchange laws, it was reported today.

Notices have been sent to the Indian units that they are being investigated for potential violations, the Wall Street Journal said, citing a senior official at a division of India's federal finance ministry, which monitors foreign exchange transactions and money-laundering activities.

A spokesman for India's finance ministry declined to confirm whether notices have been issued to Google and Yahoo.

"We have an obligation to our shareholders to set up a tax efficient structure and our present structure is compliant with the tax rules in all the countries where we operate," a Google India spokeswoman said in a statement, adding Google has not received any notice.

Separately, Google and Yahoo are among nearly two dozen internet companies already under fire from India's government and courts which want them to better police their sites for offensive content posted by users.

Google and Facebook removed some content from Indian web sites earlier this month after a court directive warning them of a crackdown "like China" if they didn't take steps to protect religious sensibilities.

Telecom minister Kapil Sibal said today the government would never censor social media, signalling to tone down pressure on the internet sites.

Reuters