The newly introduced Income Tax Bill, 2025, is drawing significant attention, not just for its promise of modernizing India's tax framework but also for the sweeping powers it grants tax authorities. While Finance Minister Nirmala Sitharaman presented it as a necessary overhaul of the outdated Income-tax Act of 1961, legal experts and privacy advocates are raising alarms over a specific provision that expands the scope of tax searches into digital domains. The bill explicitly allows tax officers to access a taxpayer’s “virtual digital space,” which includes cloud servers, emails, social media platforms, and online trading accounts.
Currently, tax officials can request access to laptops, hard drives, and emails, but such demands often face legal hurdles since the existing tax law does not explicitly mention digital records. This has led to several instances where taxpayers have been able to refuse or challenge such requests in court. The new bill removes any ambiguity by granting tax authorities the power to override security measures, bypass passwords, and unlock digital files if a taxpayer refuses access.
The bill contains a clause stating that tax officials can “break open the lock of any door, box, locker, safe, almirah, or other receptacle,” and that this now extends to digital spaces where “access codes” or passwords are not provided. This effectively means tax authorities will have free rein to enter and search virtual spaces, something that was previously in a legal gray area.
Legal professionals have expressed concern that this could lead to potential misuse of power. Vishwas Panjiar, a partner at Nangia Andersen LLP, noted that this is a significant shift from the current law and warned that, without proper safeguards, taxpayers could be subjected to unnecessary harassment or unwarranted scrutiny. Sanjay Sanghvi, a partner at Khaitan & Co, pointed out that while tax officers have previously sought access to digital data, the law never explicitly permitted it. By eliminating this legal uncertainty, the new bill makes it compulsory for taxpayers to provide access when asked.
Critics argue that the move gives tax authorities disproportionate power, raising concerns about privacy rights and potential overreach. Some experts fear that the absence of clear boundaries could result in excessive scrutiny of personal and business data. There are also concerns about how this could impact businesses that store sensitive customer data, as tax investigations could potentially expose confidential information.
The bill is currently under review by a select parliamentary committee, which will assess its provisions before it can be enacted into law. The government has defended the bill, stating that it is necessary to keep pace with the digital age and to prevent tax evasion facilitated through online transactions and encrypted platforms. However, privacy advocates and legal experts are pushing for stricter safeguards to ensure that these new powers are not misused. The debate over balancing tax enforcement with digital privacy is expected to intensify as the bill moves forward in Parliament.
