Cairn Energy has halted a $300m share buy-back scheme due to an Indian tax probe.

The Edinburgh-based firm said it will suspend the programme from March 21 until a review of its Indian income taxes is resolved and claimed the outcome of the review will shape its direction beyond 2014.

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The announcement hit the company's shares this morning, which were down 11%. The company announced its annual results on Tuesday, reporting a higher than expected loss after tax of $556m.

Cairn Energy Chief Executive Simon Thomson said: "Throughout its history of operating in India, Cairn has been fully compliant with the tax legislation in force.

"We intend to take whatever steps are necessary to protect our interests."

India's tax authority contacted Cairn in January to discuss income tax assessments dating back seven years.

It has requested further details on Cairn Energy's 2006 income tax in January, pre-dating the flotation of Cairn India in 2007. The company was ordered not to sell its shares in Cairn India during the investigation.

Cairn is in the process of compiling the requested information requested and will send it to the tax authority in April.