The Income Tax Bill 2025 has sparked debate over digital privacy. Despite concerns, a parliamentary Select Committee has upheld the Bill’s search and seizure provisions related to digital data. The committee, led by Baijayant Panda, found the powers comparable to existing laws and necessary for modern tax enforcement.
Search and Seizure Powers in Digital Space
The Bill grants tax authorities access to digital data including social media, emails, and encrypted communications. It allows overriding passwords and login credentials to uncover hidden financial transactions. This reflects the need to address sophisticated digital methods used to conceal income.
Privacy Concerns and Legal Safeguards
Stakeholders raised issues about privacy infringement and the scope of searches. Suggestions included protecting privileged communications and limiting the power to persons present during searches. The committee, however, deemed these powers essential for thorough investigations and aligned with the 1961 Income Tax Act.
Government Ministries’ Responses
The Ministry of Electronics and Information Technology stated that the expanded powers are necessary in a digital age. It brought into light that the Income Tax Department acts as a data fiduciary under the Digital Personal Data Protection Act, ensuring responsible data handling. The Ministry of Law and Justice emphasised that privacy rights are not absolute and can be limited for public interest and law enforcement.
Provisions on Non-Profit Organisations
The committee recommended reintroducing tax exemptions on anonymous donations for religious-cum-charitable trusts. The Bill proposed a 30% tax on anonymous donations to all NPOs except wholly religious ones. The committee brought into light the need to clarify definitions to protect hybrid organisations and legacy trusts that rely on anonymous contributions.
Tax Return Filing and Refund Claims
The Bill originally mandated filing returns within due dates for claiming TDS refunds. The committee suggested removing this requirement to avoid penalising small taxpayers with incomes below taxable thresholds. This change aims to ease compliance and prevent undue hardship on minor taxpayers.
Impact on Tax Enforcement and Compliance
The Bill’s provisions strengthen the Income Tax Department’s ability to detect evasion in the digital era. Enhanced powers aim to close loopholes created by encrypted and virtual communication. At the same time, the committee’s recommendations seek to balance enforcement with taxpayer protections and clarity in law.
Questions for UPSC:
- Critically discuss the implications of digital data access by tax authorities on the right to privacy under Indian law.
- Examine the role of data fiduciaries under the Digital Personal Data Protection Act and analyse their responsibilities in government agencies.
- Point out the challenges faced by non-profit organisations in tax compliance and explain the significance of anonymous donations in their funding.
- Estimate the effects of mandatory tax return filing on small taxpayers and discuss the balance between compliance and taxpayer relief.
