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The Central Board of Direct Taxes (CBDT) has clarified that the provisions of search and seizure under the Income Tax Act have always extended to the digital domain, but the newly enacted Income Tax Act, 2025 has now made these powers explicitly clear.
RN Parbat, Member (Legislation), CBDT, in an interview, explained that under the earlier Income Tax Act, 1961, the definition of "books of account" already covered records maintained in digital form. This allowed tax authorities to examine data stored electronically, including on the cloud.
"The provision of search and seizure was there in the old Act also. We can search the digital space under it, as the definition of books of account included digital records. The only thing is, now in the new Act, the power has been given in explicit form," Parbat said.
Focus on Undisclosed Income in the Digital Sphere
Highlighting the objective behind these provisions, Parbat noted that search and seizure operations are primarily undertaken to detect undisclosed income and assets. With the rise of virtual digital assets (VDAs) and online financial activity, tax authorities must be able to access such data during investigations.
He also pointed out that the power to override passwords of assessees has been provided to facilitate discovery of concealed income. "This is essential to discover undisclosed income and get the taxes due to the nation," he underlined, adding that such powers are invoked only in limited search cases every year.
Drawing a parallel with physical searches in the past, Parbat explained, "Earlier, when physical assets were kept in lockers or receptacles, the department had the power to break them open if the key was not provided. Similarly, in the digital space, we must be able to access records when required."
Privacy Concerns and Official Clarification
The move to explicitly provide digital search and seizure powers in the new law has triggered concerns over digital privacy and the extent of powers vested in tax authorities. However, Parbat maintained that there is no overreach. According to him, the provisions are "an essential part of the search and survey mechanism" and will only be exercised in genuine cases of tax evasion.
Next Steps in Tax Reforms
When asked about the possibility of further tax reforms in the upcoming Union Budget 2026-27, Parbat clarified that such decisions lie with the Ministry of Finance and will be taken closer to the date.
The Income Tax Act, 2025, which replaces the over six-decade-old Act of 1961, received the President's assent on August 21, 2025, after being passed in Parliament during the Monsoon Session. The new law is scheduled to come into effect from April 1, 2026.
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