Description

The recently introduced Income Tax Bill 2025 has sparked considerable debate due to its provisions enabling digital search and seizure, raising alarms about potential breaches of privacy. The Bill authorizes tax officials to override digital security features and access encrypted platforms, including social media and private messaging services. Despite public concerns, a Parliamentary Select Committee has supported retaining these powers with only minor revisions, highlighting the government's focus on modernizing tax enforcement in the digital landscape.

Understanding Digital Search And Seizure Provisions

The new Bill takes an expansive view of the digital environment, treating all virtual spaces such as social media, messaging apps, and email as fair grounds for investigation. Tax officials will have the legal authority to bypass encryption and password protections to access financial data suspected of being concealed within these digital channels. While this is intended to combat tax evasion, critics argue it may infringe on individual privacy rights.

Recommendations From Parliamentary Committee

Led by Baijayant Panda, the Parliamentary Select Committee evaluated numerous documents and feedback from stakeholders. It concluded that the search and seizure provisions align with the spirit of the 1961 Income Tax Act. The committee only recommended minor refinements in the legal wording and rejected appeals to exclude social media platforms or restrict digital searches to individuals physically present during raids.

Balancing Privacy With Legal Enforcement

Concerns were voiced regarding the possible violation of the right to privacy and the misuse of sensitive personal data. The Ministry of Electronics and Information Technology (MeitY) clarified that the Income Tax Department would function as a data fiduciary under the pending Digital Personal Data Protection Act, which mandates responsible handling and limited sharing of personal data. Meanwhile, the Ministry of Law and Justice reiterated that privacy rights can be reasonably restricted in the interest of national security, law enforcement, or public order.

Addressing Stakeholder Objections

Several stakeholders requested clear protocols for managing private information, including privileged communications such as those between spouses or attorneys. However, the government held that any statement made by individuals during a search is pertinent to investigations. It further emphasized that digital evidence includes all stored data, such as login credentials and passwords, which cannot be excluded from searches.

Exemptions For Religious And Charitable Organisations

The committee also proposed restoring tax exemptions for anonymous donations made to religious-cum-charitable organisations. The Bill’s initial proposal to impose a 30% tax on such contributions was seen as punitive, especially for hybrid non-profit organisations (NPOs) that rely on traditional donation practices. The committee recommended reintroducing provisions akin to Section 115BBC of the earlier Income Tax Act to safeguard these legacy institutions.

Relief For Small Taxpayers And Refund Claims

Originally, the Bill required mandatory filing of income tax returns to claim refunds on Tax Deducted at Source (TDS). Acknowledging the difficulties this posed for small taxpayers with incomes below the taxable threshold, the committee advised removing this requirement. The change aims to prevent penalties for late filing and allow refund claims even if returns are filed after the deadline, thus reducing undue legal pressure.

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