The Select Committee of the Lok Sabha has done a thorough job of reviewing the Income Tax Bill, 2025, making good use of the inputs from various stakeholders and experts. The report reveals a keen eye has been kept on each provision and phrase of the Bill, which was meticulously drafted in the first place. The committee has identified certain inadvertent omissions, and residual ambiguities in the Bill that would have produced unintended consequences and led to avoidable disputes, and made suggestions to set them right.
Income Tax Bill 2025
The Bill that seeks to supplant the unwieldy Income Tax Act, 1961, is admittedly not a vehicle for substantive tax reforms. Whatever the government deemed necessary as reforms have been undertaken in recent years. The overall direction of these reforms has been to simplify the tax structure, laws, and governance, and ease compliance. The imperatives of broadening the tax base, and raising the tax-GDP ratio have also been kept in mind. Domestic policies are being aligned with global practices, even while sovereign taxation rights and revenue interests are fiercely protected.
The committee, headed by Bharatiya Janata Party MP Baijayant Panda, has therefore refrained from getting into areas of serious policy debate, stating that these fell out of its remit. The restraint was notwithstanding the policy imbroglio over a few momentous aspects of taxation. For instance, the policymakers are at their wits’ end on how to cut across the divide on taxation of digital economy, and secure the country’s sovereign revenue rights, after the Trump administration abruptly withdrew from a hard-won 2021 agreement among nearly 140 nations. However, the committee seems to have erred in not mitigating a potential inconsistency of the Bill with the Digital Personal Data Protection Act (DPDPA), 2023.
DPDPA
The genesis of the DPDPA is the Supreme Court’s (SC) 2017 judgment, where it upheld that privacy is a fundamental right entrenched in Article 21 of the Constitution. While Section 132 of the I-T Act provides for search and seizure in physical spaces, the Bill extends these into the “virtual digital space” that includes emails, cloud drives, and social media accounts. The tax officer is entitled to secure the access code or even override it, if necessary, to inspect digital records/computer systems whatsoever. This not only creates serious issues of privacy breach and uncertainties in cases involving encrypted apps, but potentially runs foul of the “proportionality test” instituted by the apex court.
The select committee chose not to recommend any changes to these provisions of the Bill, citing incidents of incriminating evidence found in such digital domains, and general reluctance of those in possession of such digital data to grant access. On its part, the tax department notes the huge gap between the taxable income reported/number of actual taxpayers, and the high-value transactions captured in the annual information statements of the assessee.
While the virtual digital space in the modern context cannot be kept out of bounds for the taxman, sufficient safeguards must be put in place to proscribe unauthorised collection, storage, or processing of personal data. It is vital to ensure any such data collected is used only for the stated limited purpose. Searches of personal data should require a warrant, and be restricted to those who function under strict confidentiality protocols. Any information of private nature that is incidentally exposed during investigations should be summarily redacted. The new I-T Act should be fully in conformity with the SC ruling on privacy, the DPDPA, and the relevant rules being issued.