Answer

Introduction

The Income-Tax Bill, 2025, introduced in February 2025, replaces the six-decade-old law and explicitly empowers tax authorities to access “virtual digital spaces” under Section 247, including emails, social media, cloud servers, and encrypted data, during searches and seizures—modernizing tax enforcement in the digital era.

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Advantages of Virtual Digital Space Access

• Detect Hidden Income: Enables tracing crypto wallets, online investments, and P2P transfers.
  Eg. I-T officials uncovered ₹200 crore through encrypted WhatsApp and Google Maps data.
• Accelerated Investigations: Real-time data minimises delays from manual processes.
  Eg. Section 247 bypasses password decryption delays, allowing prompt access to cloud storage.
• Data-Driven Risk Profiling: Enables AI-powered analytics to focus on high-risk entities.
  Eg. Access to digital invoice and banking history supports advanced taxpayer profiling.
• Enhanced Compliance: Knowledge of data scrutiny incentivizes maintaining genuine records.
• Bridges Legal Voids: Digital spaces not explicitly covered under the 1961 Act are now regulated.

Conflict with Puttaswamy Proportionality Test

• Overbroad Scope: “Virtual digital space” includes unrelated personal data.
  Eg. Encrypted platforms like Telegram may expose irrelevant private messages.
• Absence of Judicial Oversight: No mandate for magistrate-approved digital warrants.
  Eg. Unlike U.S. and Canadian law, Section 247 lacks independent warrant requirements.
• Lack of Least-Intrusive Means: Bypassing passwords overrides encryption without considering alternatives.
  Eg. Declined access now allows digital “lock-breaking” without exploring softer measures.
• Disregards Data Minimization: No boundaries between required and extraneous data access.
  Eg. Investigators could access private chats or medical records not linked to tax.
• Risk of Surveillance Creep: Unchecked access may open the door to rampant monitoring.

Safeguards to Prevent Misuse

• Judicial Warrants Mandated: Require prior magistrate approval for digital searches to protect privacy.
• Narrowly Define Scope: Limit digital access strictly to data directly linked to undisclosed income, avoiding unnecessary intrusion.
  Eg. The U.S. Supreme Court in Riley v. California (2014) ruled that accessing mobile phone data requires a warrant due to its sensitive nature.
• Enforce Data Minimization: Mandate extraction only of relevant financial records, excluding personal and unrelated data.
  Eg. The U.S. Taxpayers Bill of Rights ensures enforcement is not excessively intrusive, preserving taxpayer dignity.
• Establish Audit Trails: Automatically log all digital access to maintain transparency and accountability.
  Eg. International standards require detailed records of search activities subject to review.
• Ensure Data Integrity Standards: Use cryptographic methods to secure evidence and prevent tampering.

Conclusion

While empowering tax officers to access virtual digital spaces under the Income-Tax Bill, 2025 improves enforcement, it clashes with foundational privacy principles from Puttaswamy. Embedding judicial warrants, proportional limits, and accountability mechanisms are essential to balance tax integrity with privacy rights.

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