Though lofty in its intent, the new Income Tax Bill, 2025, has raised concerns about privacy and overreach. The bill, now under the review of a Select Committee and is set to come up for discussion during the coming monsoon session of the Parliament, gives sweeping powers to the tax authorities to access private communication platforms such as WhatsApp, Telegram, and email accounts.
It further allows them to override security codes and enter virtual digital spaces, including online investment platforms and encrypted messaging services.
This level of intrusion is deeply troubling. Experts warn that such provisions set a dangerous precedent for government surveillance under the guise of tax enforcement. The ostensible aim of the new bill, replacing the Income Tax Act of 1961, is to simplify the law for both the tax payers and administrators alike and reduce litigation. However, the new legislation introduces explicit provisions empowering authorities to access and seize virtual digital spaces and expands "undisclosed income" to cover virtual digital assets.
Need for judicial oversight
The taxmen can access encrypted communications, cloud storage, and digital asset exchanges if they believe a person has concealed taxable income or cryptocurrency holdings. Union Finance Minister Nirmala Sitharaman sought to justify the idea on the ground that gathering evidence from digital accounts is essential not only to prove tax evasion before a court of law but also to compute the exact amount of tax evaded. However, without proper judicial oversight, empowering tax administrators with such vast powers would be detrimental to the public interest.
At a time when digital communication is so deeply integrated into our professional and personal lives, allowing the government an easy access to sensitive public data is fraught with danger. Moreover, the bill offers no judicial oversight over these powers. In fact, it enables authorities to keep to themselves the reasons undergirding a search.
Clause 249 of the new bill prevents disclosure of the investigative reasons behind searches, hindering taxpayers' ability to challenge them effectively. The search powers must not be arbitrary. Introducing judicial warrants, similar to the systems prevailing in the United States and European Union, could help bolster fairness and accountability.
Code breakers
A computer system is defined widely to include all manners of data storage and what is described as a “virtual digital space” — among other things, email servers, social media accounts and digital application platforms. Should a taxpayer deny access to these spaces, the authorities can now override access codes to enter the system.
Another area of concern pertains to the vague definition of “undisclosed income,” which now includes digital tokens and cryptocurrencies. India has yet to establish a clear regulatory framework for cryptocurrencies, making it unfair and arbitrary to classify them as undisclosed income without proper guidelines.
By criminalizing digital assets before defining their legal status, the government is creating confusion and potential misuse of power. The broad intent of the new legislation is laudable but a closer reading reveals that many of the complexities and ambiguities that plague the current legislation remain unaddressed. In fact, the new legislation adds more powers to the tax authorities. This is troubling at a time when people want the tax laws to be simple, accessible, transparent and hassle-free.
Right to privacy
The right to privacy, upheld by the Supreme Court as a fundamental right, would be at serious risk if tax authorities are allowed to monitor digital communications without stringent judicial oversight. Unlike criminal investigations that require judicial approval for surveillance, this bill hands tax officers unchecked power to pry into citizens’ digital lives.
Entrepreneurs, especially those in the fintech and crypto sectors, may find themselves under undue scrutiny, deterring innovation and investment. Foreign investors are likely to view India’s aggressive stance on digital assets as a sign of regulatory uncertainty, driving capital away to more crypto-friendly nations. While cracking down on tax evasion is absolutely necessary, the government must strike a balance between enforcement and civil liberties.
Positive takeaways
There is no doubt that the six decade old current tax law has become unwieldy and complex with multiple provisions, exemptions and non-obstante clauses. Neither the common tax payer nor the professional was comfortable navigating the minefield of provisions.
The aim of the new bill is to clear the fog, introduce greater certainty in taxation, reduce litigation and offer clarity and ease of compliance in a predictable tax environment. The new bill brings structural refinements, deadline extensions, and digital transaction incentives, while maintaining familiar tax provisions.
It also replaces the traditional "Assessment Year" (AY) and "Previous Year" (PY) with a unified "Tax Year". This change simplifies tax terminology, making it more understandable for taxpayers.
Currently, for income earned in the previous year, tax is paid in the assessment year. This concept of previous year and assessment year has been removed and only tax year under the simplified bill has been brought in.
As per the proposed law, clearer tax treatment on stock options (ESOPs) have been included for reduced tax disputes and includes judicial pronouncements of the last 60 years for more clarity.
Also read: Who is more corrupt in India; politicians or others?
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