On July 21, 2025, the Parliamentary Select Committee, chaired by BJP MP Baijayant Panda, tabled its report on the Income Tax Bill 2025 in the Lok Sabha, addressing the provisions of the proposed legislation introduced by Finance Minister Nirmala Sitharaman on February 13, 2025.
However, one of its most debated provisions, under Section 247, grants tax authorities unprecedented powers to access and override passwords for virtual digital spaces, including social media profiles, emails, bank accounts, and online trading platforms, during search and seizure operations. These provisions have raised concerns among stakeholders, privacy advocates, and digital rights organisations, prompting a review by a 31-member Parliamentary Select Committee chaired by Baijayant Panda.
The Income Tax Bill 2025 represents a significant effort by the Narendra Modi government to streamline and rationalise the Income Tax Act of 1961, which has undergone numerous amendments over six decades. The bill seeks to simplify tax laws, reduce redundancies, and adapt to modern economic and technological realities.
The committee’s 4,575-page report, tabled on July 21, 2025, during the Monsoon Session of Parliament, retained these controversial provisions despite calls for modifications. This report examines the bill’s provisions, the committee’s rationale, stakeholder feedback, and the balance between tax enforcement and privacy rights.
Background and Context
The Income Tax Act of 1961, with its 5,12,535 words, 47 chapters, and 819 sections, has long been criticised for its complexity and outdated framework. The Income Tax Bill 2025 aims to address these issues by simplifying the language, reducing the legislative word count to 2,59,676, halving the number of chapters to 23, and reducing sections to 536. To enhance clarity, the bill increases the number of tables from 18 to 57 and formulae from 6 to 46, making the provisions more accessible and straightforward.
The Select Committee emphasised that these changes eliminate redundancies, reduce cross-referencing, and maintain long-settled taxation principles without introducing structural or policy shifts. However, the bill’s expanded search and seizure powers, particularly those related to digital data, have drawn significant attention.
Section 247 of the bill builds on Section 132 of the 1961 Act, which allows tax authorities to search premises and seize physical records when undisclosed income is suspected. The new bill extends these powers to “virtual digital spaces,” defined as environments created and accessed via computer technology, including email servers, social media accounts, online investment portfolios, bank accounts, cloud servers, and digital application platforms.
This expansion reflects the growing prevalence of digital financial transactions and the use of encrypted communication platforms for unaccounted transactions, necessitating updated enforcement mechanisms.
Provisions of the Income Tax Bill 2025 on Digital Access
Section 247 of the Income Tax Bill 2025 grants tax authorities extensive powers to access electronic records and virtual digital spaces during search and seizure operations.
Key provisions include:
Mandatory Assistance from Taxpayers: The bill mandates that individuals or entities under investigation provide “reasonable technical and other assistance,” including access codes (passwords, PINs, or other credentials), to enable tax officers to inspect electronic records, communications, or data stored on computer systems or digital platforms.
Overriding Access Codes: If access codes are not provided, tax authorities are empowered to override passwords or security settings to gain access to virtual digital spaces. This includes bypassing encryption or other protective measures to inspect emails, social media accounts, online trading platforms, bank accounts, and cloud storage.
Scope of Virtual Digital Spaces: The bill defines virtual digital spaces broadly, encompassing social media profiles, email servers, online investment and trading accounts, banking platforms, cloud servers, and other digital application platforms. This expansive definition ensures that tax authorities can investigate any digital environment suspected of containing evidence of tax evasion or undisclosed income.
Alignment with Existing Laws: The provisions align with Section 132 of the Income Tax Act, 1961, but explicitly include digital records and virtual spaces, addressing ambiguities in the current law that have led to legal challenges when tax officers demand access to electronic data.
These provisions aim to modernise tax enforcement by addressing contemporary tax evasion techniques, such as the use of cryptocurrencies and encrypted communication platforms like WhatsApp for unaccounted transactions. However, they have raised significant concerns about privacy violations and the potential for misuse of authority.
Stakeholder Concerns and Feedback
During the Select Committee’s review, stakeholders, including tax experts, digital rights organisations, and industry bodies, raised serious concerns about the bill’s digital access provisions.
Key issues included:
Privacy Violations: Stakeholders argued that granting tax authorities the power to access personal emails, social media accounts, and other digital platforms infringes on the fundamental right to privacy, as upheld by the Supreme Court in Justice K.S. Puttaswamy v. Union of India (2017). The Internet Freedom Foundation (IFF) emphasised the need for proportionality and constitutional safeguards to prevent excessive surveillance.
Scope Limitation: Suggestions were made to limit the use of accessed data to purposes strictly related to the Income Tax Act, ensuring that personal information irrelevant to tax investigations is not scrutinised.
Requirement for Tangible Reasons: Stakeholders proposed that tax authorities should record tangible reasons in writing before accessing digital spaces, ensuring transparency and accountability in the process.
Exclusion of Social Media: Some stakeholders recommended excluding social media accounts from the purview of search and seizure provisions, arguing that such platforms often contain personal and unrelated data.
Despite these concerns, the Select Committee rejected the suggestions, arguing that the provisions are essential to combat tax evasion in the digital era. The committee noted that taxpayers often withhold passwords or login credentials during search operations, necessitating the ability to override access codes.
It highlighted that incriminating evidence is frequently found in electronic records, including WhatsApp communications and emails, and that encrypted platforms are increasingly used for unaccounted transactions. The committee also dismissed the suggestion to require written reasons for access, stating that the provisions already include safeguards to prevent abuse of power and protect taxpayer privacy.
Select Committee’s Rationale and Findings
The Select Committee’s 4,575-page report, tabled on July 21, 2025, provides a detailed defense of retaining the digital access provisions. Key points include:
Necessity for Modern Enforcement: The committee argued that the rise of digital financial transactions and encrypted communication necessitates expanded powers to access virtual digital spaces. Without these provisions, tax authorities would be unable to investigate modern tax evasion techniques effectively.
Safeguards Against Abuse: The committee contended that the bill includes statutory safeguards to prevent misuse of power by revenue officials and protect taxpayer privacy. However, it did not specify the nature of these safeguards, leading to criticism from stakeholders.
Alignment with Simplification Goals: The report emphasised that the bill simplifies the Income Tax Act by reducing its complexity and enhancing clarity. The retention of digital access provisions aligns intending to modernise the tax framework to reflect technological advancements.
Precedent in Existing Law: The committee noted that the provisions build on existing powers under Section 132 of the 1961 Act, which allows tax authorities to access electronic records. The explicit inclusion of virtual digital spaces clarifies and strengthens these powers.
The committee’s decision to retain the provisions has sparked debate, with critics arguing that the lack of specific safeguards and the broad definition of virtual digital spaces could lead to excessive surveillance and privacy violations.
The Digital Personal Data Protection Act, 2023 (DPDP), and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011, mandate informed consent and notice for processing sensitive personal data, including passwords. The bill’s override provisions may conflict with these requirements, undermining the rule of law. The IFF has called for amendments to incorporate proportionality standards and limit the scope of digital searches to prevent unchecked surveillance.
Additionally, taxpayers retain legal rights to challenge unauthorised access to their digital spaces in court, as established in cases like Pooran Mal v. Director of Inspection (1974) and M.P. Sharma v. Satish Chandra (1954). However, the explicit inclusion of virtual digital spaces in the bill reduces ambiguity, potentially making such challenges more difficult.
Improvements and Broader Impact of the Bill
Beyond the digital access provisions, the Income Tax Bill 2025 introduces several improvements to enhance taxpayer-friendliness and clarity:
Simplified Language: The bill reduces the legislative word count by nearly 50 percent making it easier to read and understand.
Reduced Complexity: By halving the number of chapters and sections, the bill eliminates redundancies and minimises cross-referencing.
Enhanced Clarity: The inclusion of 57 tables and 46 formulae improves the accessibility of tax provisions.
Taxpayer Relief: The Select Committee recommended changes such as removing mandatory return filing for refunds for low-income taxpayers and reinstating deductions for inter-corporate dividends, aligning the bill with existing practices.
These changes aim to create a more streamlined and equitable tax regime, reducing litigation and enhancing compliance. However, the retention of controversial digital access provisions has overshadowed these improvements, fueling debates about the balance between enforcement and privacy.
Despite stakeholder concerns about privacy violations and calls for safeguards, the committee retained these provisions, arguing their necessity to combat tax evasion. As the bill awaits parliamentary approval and is set to take effect on April 1, 2026, the government faces the challenge of balancing effective tax enforcement with the protection of taxpayer rights.
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