Context:

• The Finance Minister's proposal under the Income-Tax Bill, 2025, allows tax authorities to access an individual’s "virtual digital space" during search and seizure operations.
• While justified as necessary due to increasing online financial activity, the move raises serious concerns about privacy, government overreach, and expanded surveillance powers.

Existing Legal Framework

• India’s current tax law, under Section 132 of the Income-Tax Act, 1961, allows for search and seizure in physical spaces like homes, offices, and lockers.
• These powers are justified by a direct link between the location and the suspected undisclosed income or assets.

Expansion to Digital Space

• The new Income-Tax Bill, 2025, proposes to expand search powers to include an individual's “virtual digital space”—such as emails, cloud drives, social media accounts, and digital platforms.
• The inclusion of “any other space of similar nature” makes this scope open-ended and undefined.
• Concerns Over Privacy and Overreach
  • Digital spaces often hold far more information than required for a tax investigation, including data involving friends, family, and colleagues.
  • This significantly increases the risk of disproportionate intrusion and the violation of privacy.
• Implications for Confidential Professions
  • The move is particularly worrying for professionals like journalists, whose devices may hold confidential sources and unpublished materials.
  • Seizures based on vague suspicion could impair press freedom and violate protected communication.
• Operational Challenges
  • The Bill also allows tax authorities to override access codes to digital devices.
  • However, it remains unclear how this will work in practice—especially for encrypted apps like WhatsApp, which were specifically mentioned by the Finance Minister.
• Judicial Safeguards and Supreme Court Intervention
  • India’s judiciary has consistently upheld that search and seizure powers are to be exercised with restraint, requiring solid evidence beyond suspicion.
  • In 2023, the Supreme Court issued interim guidelines on digital device seizures and called on the government to draft appropriate protocols.

Criticism of this Move

• Lack of Transparency and Oversight
  • The proposed provision lacks essential safeguards such as judicial oversight, accountability, and clarity, violating core democratic principles.
  • It does not require authorities to disclose the “reason to believe,” undermining transparency.
• Ignoring the Nature of Digital Data
  • The law fails to appreciate the complexity and sensitivity of digital information.
  • Electronic devices often hold vast, layered personal and professional data that require higher standards of protection.
• Absence of Legal Guardrails
  • There are no clear checks and balances in the proposed provision.
  • Without specific procedural safeguards, it opens the door to potential misuse and abuse of power by tax authorities.

Global Best Practices Emphasize Safeguards

• Canada’s Section 8 of the Charter of Rights and Freedoms protects against unreasonable searches, requiring:
  • Prior authorisation
  • Approval by a neutral authority
  • Reasonable and probable cause
• In the United States, the Taxpayer Bill of Rights guarantees due process and limits intrusive action.
  • The Supreme Court ruling in Riley vs California requires warrants to access digital devices, acknowledging the highly personal nature of such data.

Violation of the Proportionality Principle

• The proposed provision grants sweeping access to personal digital data without requiring warrants, relevance checks, or distinctions between financial and non-financial data.
• This violates the proportionality test laid down in the Justice K.S. Puttaswamy vs Union of India judgment.
• Supreme Court’s Four-Fold Test
  • The Supreme Court mandates that restrictions on privacy must:
    • Serve a legitimate aim
    • Be necessary
    • Use the least intrusive means
    • Be proportionate
  • The proposed provision fails to meet these criteria, particularly on necessity and intrusiveness.

Way Forward

• Digital Enforcement Must Respect Rights
  • The solution isn’t to discard digital enforcement, but to align it with principles of legality, proportionality, and transparency.
  • Enforcement must protect, not erode, constitutional rights.
• Unchecked Surveillance Is Overreach
  • Allowing unfettered access under the guise of regulation amounts to surveillance, not governance. It undermines public trust and violates the right to privacy.
• Hope for Reform Through Legislative Scrutiny
  • There is still scope for correction. The Select Committee reviewing the Bill should:
    • Narrow the definition of “virtual digital space”
    • Mandate prior judicial warrants
    • Require disclosure of reasons
    • Establish grievance redress mechanisms

Conclusion

• The path forward must balance enforcement with constitutional protections. Without adequate checks, the proposed law risks becoming a tool of intrusion rather than accountability.