Tax Officials Unleash Digital Dragnet: How New Raid Powers Redefine Privacy, Property Rights in India and likely to Fuel Corruption

While the Union Budget 2025 initially sparked celebrations for raising the tax-free income threshold to ₹12.75 lakh and simplifying slabs under the new regime, emerging details about enforcement mechanisms in the proposed Income Tax Bill 2025 suggest the jubilation may have been premature.

The Budget’s headline reforms—like zero tax on incomes up to ₹12 lakh and restructured slabs (5–30%)—were widely praised for boosting disposable income. However, buried in the fine print are amendments granting tax authorities unprecedented powers to raid digital assets, override access codes, and virtually attach properties without physical seizure under Section 247.

These provisions, lacking judicial oversight, risk enabling coercive investigations and data privacy violations, shifting focus from taxpayer relief to enhanced state surveillance. With the Central Board of Direct Taxes (CBDT) yet to issue guidelines to curb misuse, critics argue the reforms create a paradoxical landscape: generous exemptions upfront but draconian enforcement tools that could undermine trust in the tax system. As legal challenges mount over potential breaches of privacy rights (per Puttaswamy judgment), the initial euphoria appears overshadowed by concerns that the Bill prioritizes enforcement efficiency over taxpayer safeguards.

Expanded Search and Seizure Powers

• Digital Access: Tax officials can now access emails, social media accounts, cloud storage, online banking, trading, and investment accounts without needing separate permissions. This includes overriding access codes if they are not provided, allowing them to bypass digital security measures.
• Virtual Attachment: A new provision allows tax officials to virtually attach properties, including real estate, shares, and bonds, without physical possession. This prevents the sale or transfer of these assets.
• Immediate Property Attachment: Officials can attach properties during searches without prior notice, which can remain in place for up to six months.

Before vs. Now- What is different in New Income Tax Bill 2025

What is Virtual Attachment of the Assets in New Income Tax Bill 2025

Under Section 247 of the Income Tax Bill 2025, virtual attachment allows tax authorities to legally block the sale or transfer of assets (e.g., shares, bonds, real estate) without physically seizing them. This prevents taxpayers from disposing of assets during investigations, even if they remain in their possession.

Tax officials are gaining unprecedented powers to raid digital assets and attach properties, and the potential risks of misuse and corruption.

Implications for Taxpayers

1. Privacy Erosion: Tax officials can bypass passwords to access emails, social media, and financial accounts, raising risks of data leaks and surveillance overreach.
2. Harassment Risks: Critics like Mohandas Pai warn that vague “reason to believe” clauses could enable arbitrary raids and coercion.
3. Financial Disruption: Virtual attachment freezes assets for up to six months, affecting liquidity and business operations.

Do These Rules Infringe Investor Rights?

Yes. The lack of judicial oversight for digital searches and immediate asset freezes conflicts with:

• Right to Privacy: Upheld in Justice K.S. Puttaswamy v. Union of India (2017), which mandates proportionality in state intrusions.
• Due Process: Immediate attachment without notice or hearings undermines procedural fairness.
  Legal experts predict constitutional challenges, particularly over Section 247’s non-compliance with privacy safeguards.

Will Courts Strike Down These Laws?

Likely. The Supreme Court has historically invalidated laws violating Article 21 (right to privacy) and Article 19 (freedom of trade). Key arguments against the Bill include:

• Overbreadth: Powers extend beyond tax evasion to personal communications.
• Lack of Safeguards: No requirement for warrants or post-search reviews.
  Courts may demand amendments to align with the Puttaswamy principles of necessity and proportionality.

CBDT Guidelines: What’s Missing?

As of March 2025, the Central Board of Direct Taxes (CBDT) has not issued detailed guidelines to curb misuse. Taxpayers currently rely on:

• Section 253: Requires officials to record reasons for searches in writing.
• IT Act, 2000: Mandates data protection during digital seizures.
  Activists urge the CBDT to clarify accountability measures for officials leaking sensitive data.

How Can Taxpayers Ensure Fair Investigations in new Income Tax Bill 2025?

1. Demand Written Authorization: Verify that raids are conducted by authorized officers (joint director/commissioner or higher).
2. Invoke Right to Privacy: Refuse access to non-financial digital data (e.g., personal messages) unrelated to tax evasion.
3. Legal Recourse: Challenge arbitrary actions in High Courts under Article 226 or the Supreme Court via writ petitions.
4. Document Everything: Record interactions with officials to prevent coercion or procedural violations.

The Income Tax Bill 2025 marks a tectonic shift in enforcement with  state overreach into private lives. While aimed at curbing tax evasion, its unchecked powers threaten constitutional rights and investor confidence. Until courts or the CBDT intervene with robust safeguards, taxpayers must stay vigilant to protect their digital and financial autonomy.

 The Bill is pending parliamentary approval and is slated for implementation on April 1, 2026.

Impact on Corruption with New Income Tax Bill 2025

Corruption in tax administration is a significant concern worldwide, as it undermines trust in government and reduces public revenue4. The enhanced discretionary powers granted to tax officials could exacerbate this issue:

• Increased Discretionary Powers: With more authority to access personal data and assets, there is a higher risk of officials soliciting bribes or creating hurdles for taxpayers, leading to corruption.
• Lack of Oversight: The absence of judicial oversight in accessing digital data increases the likelihood of arbitrary actions, which could further erode trust in the tax system.

Countries with Similar Laws

While many countries have laws allowing tax authorities to access digital data, they often require judicial oversight:

• United States: Requires a court-issued warrant to access digital data.
• European Union: Imposes strict privacy restrictions under GDPR.
• Canada: Mandates demonstrating just cause in a legal forum before accessing digital records

India’s approach, however, stands out due to its lack of judicial oversight, making it more susceptible to potential misuse.