The Finance Minister recently introduced a proposal in Parliament to allow tax authorities to access, under the Income-Tax Bill, 2025, an individual’s “virtual digital space” during search and seizure operations. The justification is straightforward: as financial activity moves online, so must enforcement. However, this glosses over the far-reaching implications of such a shift, which raises significant concerns about privacy, overreach, and surveillance.
A blurring, open-ended
Currently, India’s tax law already provides for search and seizure under Section 132 of the Income-Tax Act, 1961. But those powers are limited to physical space such as a house, office, and locker. Since such operations are based on suspicion of undisclosed income or assets, there is a connection between the objective, which is finding undisclosed income and getting access to physical assets.
The new Bill, however, blurs this link by including an individual’s digital presence which is not only vast but often contains much more than what is relevant to a tax investigation. Without clear limits, such access can lead to disproportionate intrusion. For example, under the existing regime, what could be searched was what concerned only the individual under investigation. In contrast, digital spaces involve multiple stakeholders. Accessing a social media account also exposes friends, family, and professional contacts, through photographs and posts.
The proposed definition of ‘virtual digital space’ includes access to emails, personal cloud drives, social media accounts, digital application platforms, and more. Crucially, the phrase “any other space of similar nature” makes the list open-ended, potentially covering a wide range of digital platforms. Additionally, the proposed provision empowers tax authorities to override access codes to gain entry into electronic devices or virtual digital spaces. It still remains unclear though how this power will be operationalised in practice particularly in cases involving encrypted messaging apps such as WhatsApp, as explicitly cited by the Finance Minister in Parliament.
The problem becomes even more of a concern when the individual involved is a professional whose work requires confidentiality. For instance, journalists whose devices and emails hold sensitive information, including confidential sources, unpublished material, and protected communications. If a search is conducted on flimsy or overly broad grounds, it not only violates their privacy but also endangers their ability to undertake reporting. Recognising the risks, the Supreme Court of India, in 2023, circulated interim guidelines on the seizure of digital devices and directed the Union Government to contemplate formulating necessary protocols. Moreover, the judicial interpretation of “reason to believe” emphasises the need for tangible material beyond mere suspicion. Even under existing law, courts have construed that the provision ought to be exercised strictly, acknowledging that search and seizure is a serious invasion of privacy.
A violation of transparency, accountability
Yet, the proposed provision goes against these principles and is devoid of guardrails, judicial oversight, and has a lack of understanding of the stakes. It fails to acknowledge, let alone address, the sheer breadth and layered sensitivity of information stored on electronic devices. In line with the current law, the proposed provision prohibits disclosure of the “reason to believe” clearly violating principles of transparency and accountability.
Globally, privacy and transparency standards in search and seizure, especially where digital devices are involved, are grounded in statutory protections and procedural safeguards. In Canada, Section 8 of the Charter of Rights and Freedoms guarantees the right to be secure against “unreasonable search or seizure”. It is designed to prevent unjustified searches and sets a three-part default standard: prior authorisation; approval by a neutral and impartial judicial authority; and reasonable and probable grounds. In the United States, the Taxpayer Bill of Rights, adopted by the Internal Revenue Service, affirms that taxpayers have the right to expect that any inquiry or enforcement action will be legally compliant and will not be more intrusive than necessary following due process rights, including search and seizure protections. The U.S. Supreme Court’s decision in Riley vs California also necessitated a warrant before accessing digital data, given the deeply personal nature of information stored on phones and devices.
Contradiction of proportionality test
In contrast, India’s proposed Income Tax provision grants sweeping access to digital personal data without warrants, relevance thresholds, or any distinction between financial and non-financial information. This directly contradicts the proportionality test upheld by the Supreme Court in Justice K.S. Puttaswamy (Retd.) vs Union Of India. The Court has held that any restriction to an individual’s privacy must meet a four-fold test, of which proportionality was key, requiring state action to pursue a legitimate aim, satisfy necessity and adopt the least intrusive means available. Allowing unfettered access to personal digital data, in the absence of judicial oversight or safeguards, fails this standard.
The way forward is not to abandon digital enforcement altogether. Rather, it is to root it firmly in principles of proportionality, legality, and transparency. The right to privacy cannot and must not be eroded under the garb of regulatory action. Unchecked surveillance in the name of compliance is not governance but overreach. There is hope that the Select Committee which is currently reviewing the Bill narrows the definition of ‘virtual digital space’, and mandates prior judicial warrants and disclosure of reasons for such access to digital content in addition to establishing mechanisms of redress for aggrieved individuals.
Mahwash Fatima is a Manager, Public Policy at TQH Consulting’s technology practice in Delhi
Published – June 30, 2025 12:08 am IST