In order to begin with the introduction of the article, let’s assume a hypothetical scenario where one day tax authorities appear on your door and rather than interfering with your physical space they start accessing your emails, chats done on online spaces like WhatsApp or Instagram, and even open your documents though storage file without even providing you a notice, summon, or even a warrant, simply because they have “reason to believe” that you might evade taxes.[1] In this case, the first question that might be raised in the minds of a prudent person is “What remedy do I actually have in such a case?”. This issue has gained relevance recently in the limelight of the Income Tax Bill, 2025[2] (hereinafter referred to as ‘Bill‘) which was introduced in the Lok Sabha on 13th February, 2025[3], and it seeks to replace one of the earliest existing Income Tax Acts, 1961[4] (‘hereinafter referred to as “1961 Act‘) through various significant changes enhance readability, ensure better navigation, and, most importantly to facilitate ease of reference through a three-pronged approach adopted while drafting the bill.[5]
Additionally, despite the various changes the bill tried to make to simplify the complex reading of clauses for the general public, it also caught the attention of the media and online reporting agencies due to its provisions extending to virtual digital space under Section 261(f)[6] of the bill that could allow tax authorities or assessing officers under Section 295 [7]to gain access to our “digital assets” during search and seizure, which could have serious consequences of involuntary access to your passwords and bypassing encryption of emails, social media, media storage, etc., without any notice, summons, or warrant.
Throughout the discussion in this article, it would be divided into a two-prong analysis: first, it would delve into the historical origin of search and seizure powers under the Indian regime. And critically analyzes the provisions of the Bill relating to digital search and seizure. Secondly, the article would try to highlight the conflict with the recently passed Digital Personal Data Protection Act, 2023[8] (hereinafter referred to as ‘DPDP Act‘) and also highlight other issues or challenges which can be witnessed under the act. Lastly, the article would end with providing certain recommendations that can be taken into account for future amendments under the act.
- Origin of Search & Seizures under the Indian Regime
Firstly, in this regard, the history of the authority to undertake or conduct search or seizure dates back to the colonial era, where the tax law was mainly concerned with the collection of revenue based on self-assessment and some voluntary disclosure under the Indian Income Tax Act, 1860 [9] (‘hereinafter referred to as “1860 Act‘)which was first introduced by Sir James Willson, a wily entrepreneur turned politician who was tasked to gather revenue after the Mutiny of 1857,[10] However, the act only remained a hallmark for its one-of-a-kind attempt to meet the losses through sourcing income at various levels, like from landed property, professionals and trades, salaries and pensions, and the emerging concept of securities at that time.[11] and it did any formal provision for search or seizure, which limited the intervention of the state for many individuals who, at times, tried to circumvent the obligations.
Additionally, another attempt came in the year 1886, which again occurred in the year 1917,[12] repealed the previous 1886 act, which was divided into the following four schedules, which were taxed separately:[13]
- Salaries, pensions, or gratuities;
- Net profits of companies;
- Interests in the securities of the Government of India;
- Other sources of income.
Further, in 1922, the Income Tax Act was enacted, which, for the first time, provided a specific nomenclature to various Income-tax authorities.[14] But the heart of investigative powers in the Indian income regime can be found in the Taxation on Income (Investigation Commission) Act, 1947 (‘hereinafter referred to as “1947 Act‘)[15] which established the foundational mechanism for investigating tax evasion & empowered the Income-tax Investigation Commission, under Sections 6 and 7,[16] to play their roles like a Civil Court, compelling document production, examining accounts, and summoning witnesses.[17]
This was built upon by the 1961 Act, which marked the first codification of one of another series of long statute or legislative framework to establish a regulatory set up for search and seizure powers in the tax regime of India as per Section 132, which gave competent officers power to enter premises, force open lockers, seize assets, and even question persons on oath if they have a “reason to believe” that income or some record was being concealed.[18]
However, a series of ambiguities was created with the enactment of the Finance Act, 2017 (‘hereinafter referred to as “2017 Act‘)[19], wherein it inserted explanation to Sections 132(1) and 132(1A) of the 1961 Act, which provided that the “reason to believe” or “reason to suspect” for the exercise of such powers shall not be disclosed to any person, authority, or even the Income Tax Appellate Tribunal and such was viewed from the purview of compromising transparency and judicial oversight.[20]
- Analysis of the Provision of Bill Vis-À-Vis Search And Seizure?
However, significant changes did not end, and when the new bill was tabled in the walls of parliament, it introduced the recognition of “virtual digital space” under Section 261(i)[21]which on the outset appears to be a very broad term, including anything from e-mails and social media accounts to cloud servers, online banking, or an online trading platform where an individual using a digital platform stores their data or facilitates communication & transactions.
Additionally, in case of search and seizure, the 1961 Act was mostly limited to the scenarios of physical premises, records, and tangible property. However, the Bill took a huge leap in this regard and made a major change by extending these powers into the digital realm, and empowering authorities to access virtual spaces without notice or warrant if there is “reason to believe” that a person possesses undisclosed income or assets, whether in India or abroad under Section 247(1)(b) of the Bill,[22] which also at the same time empowered officers to require persons who are in possession or in control of electronic records or data to provide technical assistance where required, including access codes, to facilitate further inspection.
Further, in cases where person do not consent to the access of such electronic, under section 247(1)(b)(iii) of the Bill, it provided the competent officer powers to forcibly access any premises or storage units such as doors, safes, lockers, cabinets, or similar containers and such may even could extend to overriding or bypassing digital security mechanisms, ranging from passwords/ access codes, gain entry to computer systems, or digital space where relevant information or assets are believed or suspected to be kept.
Moreover, another set of concerns was raised with regard to Section 247(7) of the Bill.[23] which expanded the scope of the presumption in case of proceedings by incorporating digital elements. To simplify it better, the section states that “if something is found with someone during the search: (i) it is presumed to belong to them; (ii) the contents are assumed to be true; and (iii) signatures/handwriting are assumed to be authentic which under Section 247(7)(b), introduces a presumption regarding electronic data and communication exchanges.[24] which would be assumed to be true and exchanged between the parties involved, which could have serious implications in cases where, sometimes, the authorities locate a message or conversation that seems to be sarcastic or kind of show-off in nature in WhatsApp chats, stating “I earned 50 lakhs trading crypto”.[25] Such would only bring unjust inferences, which are particularly not suited during times in which digital communication tends to be non-serious, ironic, and hyperbolic.
- Conflict With The DPDP Act?
After delving into changes witnessed the provision of the bill with regard to search and seizure, the Bill also under Section 247(1)(b)(iii), empowers officers to bypass consent and passwords or encryption for accessing digital accounts like emails, social media, cloud storage, appear to be challenge the DPDP Act as there is need to ensure that the extraordinary access granted to tax authorities is exercised with adequate checks and balances & without safeguards, there is a risk that these exemptions granted to state instrumentalities could be misused, affecting the vision of privacy protection realised by the Act.
- Issues And Challenges Under the Bill
Additionally, when it comes to some more issues and challenges which can be witnessed under the bill, it should be observed from the perspective of Pooran Mal v. Director of Inspection (Investigation) of Income Tax (hereinafter referred to as ‘Pooran Mal‘)[26] & its supporting ruling in M.P. Sharma v. Satish Chandra (hereinafter referred to as ‘Satish Chandra’)[27] that stated such search and seizure powers should serve legitimate state interests, maintain economic and social order, and should be exercised within the ambit of law. However, in the case of the bill, Section 247(1)(b)(iii) highlighted also previously, might at times allow tax officers to bypass consent and passwords or encryption without notice, summons, or warrant, which could invite a series of constitutional issues and invite judicial scrutiny.[28]
Further, besides constitutional issues, there are also another host of concerns such as there is also uncertainty with regard to how information obtained from searches may be used as unlike the presence the ‘fruit of the poisonous tree’ doctrine in United States of America which exclude illegally obtained evidence, there is no such absolute exclusion under the Indian Evidence Act.[29] While the Courts in India have also held in their interpretation in the case of Pooran Mal and State of M.P. v. Paltan Mallah (hereinafter referred to as ‘Paltan Mallah)[30] that “evidence is admissible based on relevancy even if it is illegally or improperly obtained”.
Moreover, there is a growing issue or observed that the machinery framework of tax could be used as at times a tool for intimidation and surveillance, particularly when enforcement action seems selectively targeted on political lines, and such misuse could hamper public trust and go on to the extent of destroying the credibility of the tax system.[31]
Lastly, all such may have an indirect effect on businesses or companies who resort to informal, off-record arrangements for tax planning and consultancy, encouraging opacity rather than transparency, which could also result in darker and grey alternative avenues of tax planning and consultancy being used.
- Recommendations And The Steps Ahead.
Firstly and foremost, that there is need to of a judicial oversight introduced in this regard as bypassing the exemptions without any notice or summon, must require prior approval from a magistrate might become regular day of observance and such situations there could be even a risk of tampering of evidence & such require cleverness of judicial authorities to require them at least judicial sanction within reasonable time period to prevent such acts.[32]
Additionally, to the judicial safeguards that might become need of the hour, there is a need to also clarify that the “reasons” for any search or seizure is conveyed to the suspect, preferably in written form, on the same day or within a time frame set out through future amendments as such would ensure that the principles of natural justice remain not violative but also gives the individual or assessee the inferences on which privacy and property are searched upon, and enables them to seek for an an appropriate legal remedy or defence if required in situations. Making such amendments would also ensure that such disclosure would act as a deterrent against arbitrary or mala fide searches, requiring search authorities to exercise their powers responsibly and with due diligence, especially in a digital era where searches may involve access to highly sensitive personal and business data, which requires even greater significance.[33]
Further, it must be ensured that as we moves forwards each year of our independence from mechanisms of appropriating tax for benefits of the rulers to modernizing tax mechanisms to actually serve the needs of people living in lowest possible hierarchy, we, as barrier brakers, should strive that this technological growth does not sacrifice our personal privacy and as well as promotes the confidence in the tax system.
[1] Irfan Rashid, Privacy at Risk? Warrantless Access to “Virtual Digital Space” Under Income Tax Bill 2025, LiveLaw (28 July 2025), https://www.livelaw.in/lawschool/articles/access-to-virtual-digital-space-income-tax-bill-2025-critical-analysis-298954 (Accessed 21 Aug. 2025).
[2] Income Tax Bill, 2025, Bill No. 104 of 2025 <2dad0d8b-1eda-4790-b7b3-605db75dcdaf.pdf> (Last Accessed 21 August 2025)
[3] Income-tax Bill, 2025, tabled in Parliament today towards achieving comprehensive simplification of the Income-tax Act, 1961, Press Info. Bureau (13 Feb. 2025), https://www.pib.gov.in/PressReleasePage.aspx?PRID=2102744 (Accessed 21 Aug. 2025).
[4] Income Tax Act, 1961, Act No. 43 of 1961 (India).
[5] Supra Note 4.
[6] Supra Note 2 § 261(f).
[7] Supra Note 2 § 295.
[8] Digital Personal Data Protection Act, 2023, Act No. 22 of 2023 (India).
[9] Income Tax Act, 1961, Act No. 43 of 1961 (India).
[10] C.L. Jenkins, Legislative Comment 1860, India’s first income tax (British Tax Review Page, 2012) <https://ia600408.us.archive.org/22/items/IndiaFirstTax18601/India-First_Tax_1860 %281%29.pdf> (Last Accessed 21 August 2025).
[11] Tarun Kumar Madaan, History & Evolution of Income Tax Act in India, TaxGuru (9 Aug. 2020), https://taxguru.in/income-tax/history-evolution-income-tax-act-india.html (Accessed 21 Aug. 2025).
[12] Indian Income Tax Act of 1917, Act No. 8 of 1917 (India).
[13] Deepak Sharma, Fundamental of Taxation in India, Indian J. of Research & Analytical Reviews, Vol. 7, Issue 3 (Sept. 2020), https://ijrar.org/papers/IJRAR2002700.pdf (Accessed 21 Aug. 2025).
[14] Supra Note 11.
[15] Taxation on Income (Investigation Commission) Act, 1947, Act No. 30 of 1947 (India).
[16] Ibid §§ 6–7.
[17] Supra Note 1.
[18] Supra Note 4 § 132
[19] Finance Act, 2017, Act No. 7 of 2017 (India).
[20] Supra Note 1
[21] Supra Note 2 § 261(i)
[22] Supra Note 2 § 247(1)(b).
[23] Supra Note 2 § 247(7).
[24] Supra Note 2 § 247(b)
[25] Supra Note 1.
[26] Pooran Mal v. Dir. of Inspection (Investigation) of Income Tax, 1973 SCC OnLine Del 271 (India).
[27] M.P. Sharma v. Satish Chandra, AIR 1954 SC 300 (India).
[28] Supra Note 2 § 247(1)(b)(iii)
[29] Supra Note 1.
[30] Pooran Mal and State of M.P. v. Paltan Mallah, AIR 2005 SC 733 (India).
[31] Supra Note 1.
[32] Supra Note 1.
[33] Ibid.
Author: Yuvraj Grover
Juris Centre 