Income Tax Bill 2025: Clarification on digital access powers

The new Income Tax Bill prescribes the existing process for tax authorities to gain access to the digital space or a computer device only during search and survey operations, and it is not aimed to breach the online privacy of common taxpayers even if their case lands into scrutiny, a top I-T department official said Monday.

The powers for such a coercive action "already existed" in the 1961 Act, and these have only been reiterated in the Income Tax Bill of 2025, he said.

The official rejected claims made in some reports and opinion pieces that the tax authorities have been granted "additional" powers to breach the passwords of electronic records, including email, social media handles and Cloud storage space of the taxpayers.

"Such reports are nothing but fear mongering. The tax department is not into snooping of social media accounts or online activities of a taxpayer.

"These powers are only to be executed during the course of a search or survey operation, and that too when the assessee being searched or surveyed refuses to share the passwords for digital storage drives, emails, Clouds and communication platforms such as WhatsApp and Telegram, etc.," the officer told PTI.

Section 247 of the Income Tax Bill, 2025, which is before Parliament at present, prescribes an authorised officer to gain access by "over-riding" the access code of computer system or 'virtual digital space'.

The government has brought the new Bill in order to change the decades-old I-T Act of 1961 with an aim to make the bulky direct tax law simpler and easier for the taxpayers.

Under the existing law, Section 132 enables an authorised officer to require any person who is found in possession of books, accounts or other documents in the form of electronic record to afford facility to inspect such documents and also to seize such document (including electronic record as per Section 2(22AA) of Income Tax Act, 1961).

"Tax crimes and the methods of tax evasion have attained a new level of sophistication with the advent of smart Internet-based tools and technology," the official said.

Gaining access to digital devices and spaces during coercive actions like search and survey is vital to find evidence and these raids are limited when you see the data," a second official said.

The tax department conducts about 100-150 "full blown" searches and surveys in a financial year, and this enforcement action is not aimed towards the common taxpaying individual or entity.

Also, out of the about 8.79 crore income-tax returns (ITRs) filed annually, only about 1 per cent are selected for scrutiny, the official said.

"The provisions related to 'virtual digital space' are not applicable even to these cases under scrutiny. It is applied only during the process of a search or survey and not even before this action is mounted.

"The tax department does not snoop or make a back door entry against any individual or entity through their social media accounts," the first official said.

As per officials in the tax department, gathering evidence from digital accounts is not only "essential" to prove tax evasion before a court of law, but also for computing the exact amount of tax evaded.

During search and seizure operations, it has been found in some cases that the person in control of books, documents and records, etc., does not cooperate with the proceedings or provide necessary facilities to access the evidence.

In this digital and e-enabled world, information is stored in servers and storage facilities abroad, which are not accessible from India and the access code is not provided by the person concerned.

In such circumstances, the entire exercise of search and seizure gets redundant and can result in the tax evader going scot-free, officials said.