Income Tax Bill 2025
The Income Tax Bill 2025 has recently sparked debate over privacy concerns linked to its digital search and seizure provisions. The Bill grants tax authorities powers to override digital security measures and access social media and encrypted communications. Despite objections, a Parliamentary Select Committee has recommended retaining these powers with minimal changes. This move reflects the government’s intent to adapt tax enforcement to the digital age while balancing privacy and legal safeguards.
Context of Digital Search and Seizure Powers
The Bill defines virtual digital space broadly, covering all digital platforms where users interact and communicate. Tax officials can bypass passwords and encryption on social media, emails, and messaging apps to uncover financial data hidden in encrypted chats. This aims to tackle tax evasion through digital means but raises privacy issues.
Parliamentary Select Committee’s Recommendations
The Select Committee, led by Baijayant Panda, reviewed thousands of pages and stakeholder inputs. It found the search and seizure clause adequate and consistent with the 1961 Income Tax Act. The committee suggested only drafting corrections without diluting powers. It rejected calls to exclude social media or limit coverage to specific individuals present during searches.
Privacy and Legal Safeguards
Concerns were raised about infringement of the right to privacy and misuse of personal data. The Ministry of Electronics and Information Technology (MeitY) noted that the Income Tax Department would act as a data fiduciary under the pending Digital Personal Data Protection Act. This imposes responsibilities to protect data and restrict its sharing. The Ministry of Law and Justice emphasised that privacy is not absolute and can be limited for national security, public order, or crime prevention.
Stakeholder Concerns and Ministry Responses
Stakeholders sought clear guidelines on handling personal data and protection of privileged communications such as between spouses or lawyers. The government maintained that statements from any persons present during searches are relevant for investigations. It also argued that digital data includes all forms of stored information, including login credentials, which cannot be excluded.
Tax Provisions for Non-Profit Organisations
The committee recommended restoring exemptions on anonymous donations to religious-cum-charitable trusts. The Bill’s proposed 30% tax on anonymous donations was seen as burdensome, especially for hybrid NPOs. Reintroducing provisions similar to Section 115BBC of the old Act would protect legacy organisations relying on traditional donation methods.
Refund Claims and Filing Flexibility
The Bill made filing income tax returns mandatory to claim TDS refunds. The committee suggested removing this to ease hardship on small taxpayers whose income is below taxable limits but face penalties for late filing. This change aims to prevent undue prosecution and allow refund claims even if returns are filed late.
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