This article discusses India’s new Income Tax Law that empowers tax authorities to access citizens' digital accounts. Learn about the privacy concerns, compliance obligations, and the legal framework behind this move to combat tax evasion in the digital age. We also provide insights on how this policy compares to global practices and its implications for Indian businesses and taxpayers.

New Income Tax Law Allows Tax Officers Access to Digital Accounts | Privacy and Compliance Guide

Introduction to the New Income Tax Policy

Key Provisions of the New Tax Law

CA Divaker Jagga-Crypto Expert

India’s tax authorities are set to gain sweeping new powers to access citizens’ digital accounts – including personal emails and social media – as part of a broader crackdown on tax evasion. Starting April 1, 2026, the Income Tax Department will be legally empowered to access private digital spaces during investigations of undeclared income. This controversial move, introduced in the Income Tax Bill 2025, expands the scope of tax searches into online realms and has raised significant privacy concerns. Below, we examine the key aspects of this development, including when such access is permitted, the legal framework behind it, compliance obligations, privacy safeguards, how it compares internationally, and what it means for taxpayers and businesses.

When Can Tax Officials Access Your Digital Accounts?

Under the upcoming policy, tax officials can access email, social media, and other digital accounts only in specific cases of suspected tax evasion. This authority is derived from Section 132 of the Income Tax Act, 1961, which governs search and seizure operations. If authorities have “reason to believe” that a person has undisclosed income or assets, they can conduct a search and seize relevant records, including digital records.

Section 132(1)(iib) of the Income Tax Act, 1961 empowers officers to "break open" any locked document or storage, including digital data, when access is denied. The Income Tax Bill, 2025 extends this provision explicitly to digital storage and virtual digital spaces such as email accounts, cloud storage, and social media.

In practice, this means that during an authorized tax raid or search, officers may attempt to inspect online communications and records for evidence of hidden income. This power will apply only when the tax department has credible evidence that a person or entity is concealing taxable income or assets.

Legal Framework and Basis for Digital Access

The legal backing for this expanded access comes from the proposed Income Tax Bill 2025, which aims to overhaul India’s six-decade-old tax law.

Key Provisions in the Income Tax Act 1961

1. Section 132 of the Income Tax Act, 1961 – Governs search and seizure operations where tax authorities suspect undisclosed income.

2. Clause 247 of the Income Tax Bill, 2025 – Explicitly extends search-and-seizure powers to digital accounts and online storage.

3. Section 69 of the Income Tax Act, 1961 - Allows tax officers to treat any unexplained assets, including digital transactions or cryptocurrency holdings, as undisclosed income and tax them accordingly.

4. Rule 112 of the Income Tax Rules, 1962 – Provides detailed procedures for carrying out search and seizure operations.

5. CBDT Instruction No. 3/2023 – Directs tax officers to monitor high-value online transactions and use data analytics to identify tax evasion through digital channels.

What Counts as “Virtual Digital Space”?

The Income Tax Bill, 2025, introduces a broad definition of “virtual digital space” (VDS) to ensure tax enforcement keeps pace with technology. The following digital environments will be subject to search:

• Email servers(e.g., Gmail, Outlook, company mail servers).
• Social media accounts(Facebook, Twitter/X, Instagram, LinkedIn, etc.).
• Online investment, trading, or banking accounts(for stocks, Crypto exchanges, net banking, PayPal, etc.).
• Cloud storage services (Google Drive, Dropbox, AWS cloud storage).
• E-commerce and fintech platforms(Amazon seller accounts, Paytm, Razorpay, etc.).

Under Clause 247 of the Income Tax Bill 2025, tax officers can override security controls if access is not voluntarily provided. This effectively legalizes the forced access to encrypted or password-protected data when investigating tax evasion.

Compliance Requirements for Taxpayers and Businesses

With this new law, individuals and businesses must comply with tax authorities when required to disclose digital records. The key compliance requirements are:

1. Mandatory cooperation during searches.

   • Section 132(1) of the Income Tax Act empowers tax officers to seize documents and digital records.
   • Section 132(3) allows officials to prohibit tampering or deletion of electronic records.
   • Failure to cooperate may lead to legal action under Section 275A of the Income Tax Act, which prescribes penalties for obstructing tax searches.

2. Providing access to digital records upon request.

   • Clause 247(2) of the Income Tax Bill 2025 mandates taxpayers to provide access to digital accounts.
   • Refusal to provide access could result in a search being conducted using forensic tools.
   • Section 69A of the Income Tax Act allows the government to tax undisclosed online assets at 60% plus penalties.

3. Corporate compliance for maintaining digital transaction logs for audits.

   • Rule 10D of the Income Tax Rules, 1962, mandates documentation of all international digital transactions for transfer pricing audits.
   • Failure to maintain digital records may attract penalties under Section 271AA.

Privacy Concerns and Safeguards

The expansion of tax authorities' powers has sparked concerns about privacy and potential overreach. The right to privacy was affirmed as a fundamental right in the Supreme Court case K.S. Puttaswamy v. Union of India (2017). However, under Section 132 of the Income Tax Act, privacy protections can be overridden if there is a legitimate suspicion of tax evasion.

Key Privacy Concerns

• Lack of Judicial Oversight – Unlike police searches, tax searches do not require a court warrant.
• Broad Definition of Digital Space – The vague definition could lead to excessive scrutiny of personal data.
• Conflict with Data Protection Laws – India’s Digital Personal Data Protection Act, 2023, protects personal data, but tax laws override these protections.
• Risk of Data Leaks – Sensitive personal and financial data accessed by tax officers must be handled securely.

Existing and Proposed Safeguards

• Data accessed during a search must be recorded in an official seizure memo as per Rule Rule 112(7) of the Income Tax Rules.
• Taxpayers can challenge unlawful searches through appeals under rhe Provisions of the Income Tax Act.

Global Comparisons: How India’s Approach Differs

Compared to other countries, India’s new tax enforcement strategy is more aggressive in its digital intrusion:

• In the United States, the IRS can only access private emails and social media with a court warrant, but it does monitor public digital data.
• In Europe, tax authorities work under strict GDPR data protection laws, limiting direct access to private digital records.
• In Italy, tax officials announced plans to monitor social media for signs of tax evasion, but these actions are subject to privacy regulations.
• India’s approach differs by allowing self-authorized searches and granting tax officers the ability to override security controls.

Implications for Taxpayers and Businesses

Positive Impacts

• Stronger Deterrence Against Tax Evasion – Digital access will help detect undeclared income and offshore assets.
• Faster Investigations – Tax authorities will be able to access relevant information more efficiently.
• Alignment with Global Trends – Many countries are expanding digital tax surveillance.

Challenges and Risks

• Higher Compliance Burden – Businesses must ensure all digital financial records are maintained and up to date.
• Potential Legal Challenges – The policy may face constitutional challenges over privacy concerns.
• Trust and Reputation Risks – Businesses and investors may worry about data security.

Conclusion: Implications for Indian Taxpayers and Businesses

1. Ensure digital financial records match tax filings to avoid scrutiny.
2. Be prepared to provide access to tax authorities during searches.
3. Seek legal advice if subject to a tax search to ensure compliance while protecting privacy.
4. Monitor official CBDT notifications for further compliance updates.

India is entering a new era of digital tax enforcement. While the government argues that this policy is necessary to curb tax evasion in the digital economy, taxpayers and businesses must prepare for increased scrutiny and evolving compliance requirements.