The Finance Ministry will expand the definition of a 'computer system' under the new Income Tax Bill 2025 to cover a wider range of digital devices, Finance Minister Nirmala Sitharaman informed the Rajya Sabha on Tuesday. The Central Board of Direct Taxation (CBDT) will soon release a detailed Standard Operating Procedure (SOP) for handling digital data during tax investigations.
"The definition of a computer system has to be wide enough. Today, the computer systems are of so many different varieties," FM Sitharaman said, stressing that the revised definition would prevent tax evaders from exploiting loopholes to deny access to devices during searches.
Under the existing Income Tax Act, 1961, officials have encountered cases where individuals refused to provide access, arguing that their devices were not covered by the law's narrow definition of a 'computer system.' Some even claimed that passwords were stored abroad to avoid compliance.
Rationalising Search Provisions for the Digital Era
With the rapid advancement of technology and the increasing storage of financial data in sophisticated digital devices, the Finance Minister said the government had "rationalised" search provisions to ensure access to such data during investigations.
While opposition members expressed concerns over possible privacy violations, Sitharaman assured the House that the new provisions would not grant income tax officials any additional powers that could infringe on taxpayers' privacy. She confirmed that CBDT will issue clear SOPs on how to handle digital evidence and manage personal information seized during searches.
Part of a Larger Tax Reform
The changes are part of the New Income Tax Bill 2025, passed by the Lok Sabha on Monday, which seeks to replace the six-decade-old Income Tax Act, 1961. The Bill aims to simplify the language, reduce the number of chapters, and make tax compliance faster and more transparent for taxpayers.
By broadening the legal definition of a 'computer system' and standardising the handling of digital data, the government hopes to strengthen enforcement against tax evasion while safeguarding privacy rights.
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