Income Tax authorities, who are still engaged in a bitter fight with British telecom major Vodafone, will look forward two telecom majors Idea and Vodafone with a hawk's eye.

"It's too early to say anything but the department will monitor the deal as how the transaction is carried out," a senior Income tax department official said.Authorities will closely watch how the merge is carried out, which entities are involved.

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The proposed merger moves in the telecom sector are expected to lead to less competitive intensity over the medium term. There are plans for Vodafone and Idea to merge; Reliance Communications, Aircel, and MTS are also in the process of doing so. This would mean three major players (Airtel, Vodafone-Idea and Reliance Jio) accounting for a little over 90% of subscriber and revenue market shares in 2018, leading to better pricing power, feel analysts. 

Tax authorities had sought to tax Vodafone's acquisition of Hutchison Essar operations, which was struck down by the Supreme court. The government subsequently amended the law to tax indirect transfers retrospectively, promoting the company to go in for arbitration.