New Income Tax bill 2025 and Password Override: Privacy Threat or Necessary Power?

Background

• The Income Tax Act 2025 replaces the 1961 law from April 1, 2026.

• Aim: simplification, modernisation, and reduction of archaic provisions.

• key innovation: explicit recognition of digital evidence in search and seizure operations.

What is New?

• For the first time, “virtual digital space” is legally defined. It includes:

  • Emails

  • Cloud storage

  • Social media accounts

  • Banking/trading accounts

  • Investment records

• Password override provision: If taxpayers refuse to share access, officers can legally bypass passwords using technical means.

Government’s Stand

• Not a new power, but a “digital equivalent” of existing search powers (like breaking open cupboards or lockers).

• Applicable only during raids/surveys, where there is “reasonable belief” of concealed evidence.

• Routine tax filing or scrutiny will not be affected.

Concerns Raised

• Privacy advocates & digital rights groups fear misuse:

  • Broad definition of “digital space” → surveillance risk.

  • No clarity on approval process (who authorises override?).

  • Weak/no guarantees for data minimisation, deletion, or audit trails.

  • Lack of judicial oversight at the operational stage.

• Critics argue it may chill free expression, as people may self-censor emails/social media.

Implications for Taxpayers

• Ordinary taxpayers unlikely to face this in daily compliance.

• But during searches, personal digital lives (emails, messages, social media) may become accessible.

• Legal advice and well-maintained digital records will be crucial safeguards.

Way Forward

• The Act gives the framework, but rules and SOPs (yet to be drafted) will determine:

  • Who can use the override?

  • What checks (judicial/administrative) exist?

  • How will accessed data be secured, deleted, and audited?

• Balancing tax enforcement with citizen privacy rights will be the test of the new regime.