Opposition lawmakers lined up in parliament to attack the billion-dollar franchise, which they accused of being engaged in money laundering and illegal betting.
It followed the resignation of a minister in the Congress party-led government after opposition accusations of using political muscle to influence a $333 million team bid.
The row exposes what many see as ownership of IPL cricket teams through shadowy companies involving businessmen and politicians, including possibly some linked to the ruling coalition that emphasizes clean, transparent politics.
The uproar also threatens to muddy what was hitherto seen as a brand building success story by an increasingly assertive Indian economy that dazzled cricket-mad India with its mix of big-hitting stars, Bollywood celebrities and business tycoons.
"The concerned department has already started the investigation process," Finance Minister Pranab Mukherjee told parliament.
"All aspects of IPL including its source of funding, from where the funds were obtained, how it has been invested, all these aspects in fact will be looked into and the appropriate action as per law will be taken, no guilty or wrongdoer will be spared."
The Board of Control for Cricket in India (BCCI), the sport's apex governing body, said it would meet to discuss the allegations against the tournament, which is in its third season.
"The whole league is now under a cloud of suspicion," said an editorial in the Times of India about the tournament.
"IPL has so far been a remarkable story. The format mixing sport and entertainment has caught the imagination of players, fans and big business," it said.
"Unless nurtured carefully, IPL stands to lose the gains it has made in the last three years." Lalu Prasad, a former railways minister, said in parliament that IPL members "get money from Swiss banks and make it white money here,” while a Communist lawmaker said players were being bought "like vegetables.”
Broadcasting rights to the Twenty20 tournament were sold for $1 billion for 10 years in 2008.
Though its mix of cheerleaders, pumping music between overs and fast pace has riled some traditionalists, it has attracted some of the biggest names in the game including Indian batsman Sachin Tendulkar and Australian spinner Shane Warne.
