It replaces the Income Tax Act 1961. An earlier draft of the bill, introduced in February, was withdrawn on 8 August after errors in drafting and criticism.
Published Aug 13, 2025 | 6:00 PM ⚊ Updated Aug 13, 2025 | 6:00 PM
Income Tax. (iStock)
Synopsis: Under the Income-Tax (No. 2) Bill 2025, passed on 11 August, the Union government can now access citizens’ digital footprints attach property before any tax demand is finalised, and share financial data with other agencies beyond judicial scrutiny. Notices can be sent electronically without signatures, assessments can be centralised, and officers may compel passwords or override digital locks during searches.
The Union government has introduced a sweeping overhaul of India’s income tax system through two new bills, chiefly the Income-Tax (No 2) Bill 2025.
It was tabled by Finance Minister Nirmala Sitharaman on Monday, 11 August, and passed the same day with with little or no debate and amid continuous protests from Opposition MPs.
The stated aim is to reduce legal disputes and make compliance less cumbersome, especially for individual taxpayers and micro, small, and medium enterprises (MSMEs).
But buried in the nearly 500 clauses are unprecedented powers that give the Union government expansive access to citizens’ private lives.
The law now has a very broad definition of “books of account” or records. Where this previously referred mainly to ledgers and account books, it now explicitly includes locally stored files, cloud data, emails, and social media-linked financial storage.
Section 1(19) of the bill states:
“…‘books or books of account’ includes ledgers, day-books, cash books, account-books and other books… in written form; or in electronic or any digital form, or on cloud based storage… [including] print-outs of data stored in electronic or digital form.”
The bill also defines “virtual digital space” broadly, covering:
“…email servers; social media account; online investment account, trading account, banking account… remote server or cloud servers… digital application platforms; and any other space of similar nature.” (Section 261(j))
In effect, every digital footprint with financial relevance – even private cloud folders – may be treated as part of your books of account. This represents a significant expansion of surveillance powers.
Under Section 258, tax authorities can share information with other government bodies, including those handling foreign exchange, customs, or “any other law,” if the Centre believes it is in the public interest.
The language is telling:
“The decision… shall be final and shall not be called in question in any court of law.” (Section 258(2)(b))
This means that if the Principal Chief Commissioner, Commissioner, or equivalent decides to share your tax data with another agency – even without consent – you cannot challenge it in court.
The data could also be shared with state or international authorities if the government notifies it.
One of the most potent powers in the bill is in Section 500, allowing authorities to attach a taxpayer’s property during an assessment – before any demand is finalised – to “protect the interests of the revenue.”
“The Assessing Officer… may… attach provisionally any property belonging to the assessee… [and] the total period of such extension shall not exceed two years…” (Section 500(1 & 3))
Attachable assets include:
“land, building, machinery, plant, shares, securities, fixed deposits in banks, and virtual digital asset.” (Section 499(4))
Attachments can be lifted only if a bank guarantee equal to (or in some cases less than) the asset’s value is provided.
This shifts the balance heavily toward revenue protection, even before any wrongdoing is definitively established.
The bill redefines how government notices are served, now allowing them to be sent by post, courier, or electronically:
“The service of a notice… may be made… in the form of any electronic record as provided in… the Information Technology Act, 2000.” (Section 501(1))
Other clauses (Section 502) state that electronic notices are “deemed authenticated” if bearing the name and office of the issuing authority – no handwritten signature is required.
While this improves speed, it could also create practical issues for taxpayers less accustomed to tracking official communication via email. Disputes over whether an email notice was actually received could become common.
Through Section 260, the government can design schemes that:
“eliminate the interface between the income-tax authority and the assessee… introduce a team-based exercise of powers… with dynamic jurisdiction.”
This centralisation may improve efficiency but consolidates significant discretion within the tax department. “Dynamic jurisdiction” suggests cases could be allocated across locations and teams, breaking the traditional link between a case and a local tax officer.
The new law grants income-tax authorities sweeping search and seizure powers, explicitly extending into the digital realm.
Under Section 247, if a competent authority has “reason to believe” that a person has failed or will fail to produce required records, or is in possession of undisclosed income or property, the approving authority can authorise officers to:
“enter and search any building, place, vessel, vehicle, aircraft where… such assets, books of account or other documents, or such information in electronic form or on a computer system are kept” (Section 247(1)(i)).
Critically, these searches are not limited to physical documents. Officers can:
The provision also allows:
Remarkably, officers may requisition police or even private entities approved by senior commissioners to assist (Section 247(5)). These powers explicitly cover virtual digital assets, online accounts, and remote or cloud storage, tying back to the bill’s sweeping definitions in Section 261.
The new bill, along with the Taxation Laws (Amendment) Bill, 2025 replaces the Income Tax Act 1961 and will come into effect on 1 April 2026.
Both Bills had been introduced only two hours earlier and placed on the House’s agenda through a supplementary list. MPs therefore had no opportunity to read the lengthy texts before they were taken up for passage.
An earlier draft, introduced in February, was withdrawn on 8 August after errors in drafting and criticism. For instance, the previous bill stated that refunds would not be given if income tax returns were not filed within the prescribed time frame. The panel had recommended removing this provision.
A Select Committee, formed on 13 February, reviewed the earlier draft and submitted a report of between 4,575 and 4,584 pages on 21 July. It contained between 285 and 566 recommendations, including 32 major changes.
“Almost all of the recommendations of the Select Committee have been accepted by the Government. In addition, suggestions have been received from stakeholders about changes that would convey the proposed legal meaning more accurately. There are corrections in the nature of drafting, alignment of phrases, consequential changes and cross-referencing,” the bill notes.
The new law reduces the number of sections from over 800 to 536, removing outdated and duplicate provisions. It uses simpler language to make the law easier to understand and navigate.
(Edited by Dese Gowda)
