Tax access to digital space raises serious privacy concerns

Source: The post Tax access to digital space raises serious privacy concerns has been created, based on the article “Revisit digital search powers under the I-T Bill 2025” published in “The Hindu” on 30th June 2025

UPSC Syllabus Topic: GS Paper 2-Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Context: The Finance Minister’s proposal to amend the Income-Tax Act through the 2025 Bill allows tax authorities to access an individual’s “virtual digital space” during search operations. This move, aimed at aligning enforcement with digital financial activity, raises serious concerns about privacy, overreach, and lack of safeguards.

Expansion of Search and Seizure Powers

1. From Physical to Digital Spaces: Under Section 132, current law permits searches in physical spaces like homes and lockers. The new proposal expands this to digital spaces, representing a significant shift in the scope of tax investigations.
2. Blurred Relevance and Overreach: This change weakens the earlier link between undisclosed assets and search locations. Digital data often exceeds what is relevant to tax matters, risking excessive and unrelated intrusions.
3. Open-ended Definition of Digital Space: The term ‘virtual digital space’ includes emails, cloud drives, social media, apps, and “any other space of similar nature.” This vague phrasing could enable unlimited access and affect others linked to the individual.
4. Operational Challenges and Privacy Intrusions: Authorities can override device access codes, but it’s unclear how this applies to encrypted platforms like WhatsApp. For professionals like journalists, such access could expose sensitive sources and confidential work.

Lack of Legal Safeguards and Judicial Oversight

1. Absence of Judicial Review: The proposal offers no requirement for prior judicial authorisation. This disregards previous court rulings that demand substantial evidence before invading privacy.
2. Contravention of Existing Privacy Standards: Courts have held that “reason to believe” must be backed by material evidence, not mere suspicion. The proposed change overlooks this principle.
3. Violation of Transparency Norms: Like the current law, the Bill prohibits disclosure of reasons for search, which undermines accountability and due process, especially in digital contexts.

Global Best Practices and Comparisons

1. Canada’s Constitutional Safeguards: Canada ensures protection under Section 8 of its Charter by requiring judicial approval, reasonable grounds, and neutral oversight for all searches.
2. US Legal Protections: In the US, the IRS’s Taxpayer Bill of Rights and Supreme Court rulings require that enforcement be minimally intrusive and legally compliant, including a warrant for digital data.
3. India’s Legal Lag: India’s proposal lacks such safeguards. It allows unfiltered access to personal digital data without proper checks or thresholds.

Conflict with the Right to Privacy and Proportionality

1. Failure to Meet Puttaswamy Standards: The Supreme Court’s Puttaswamy judgment laid down that privacy restrictions must be proportionate, necessary, and legally justified. The Bill does not meet these tests.
2. Risk of Unchecked Surveillance: Without safeguards, digital enforcement becomes surveillance, not governance. It threatens individual rights.
3. Need for Legal Reform: The Bill must be revised to narrow definitions, mandate judicial warrants, and offer redress mechanisms.

Conclusion

1. Balance Privacy and Enforcement: Digital enforcement must respect constitutional rights. Transparency, legality, and proportionality must guide any regulatory move.
2. Role of the Select Committee: The Select Committee’s review is a crucial opportunity to ensure checks, clarity, and protection in the final law.

Question for practice:

Examine the implications of granting tax authorities access to an individual’s virtual digital space under the proposed Income-Tax Bill, 2025.