Paper: GS – III, Subject: Economy, Topic: Taxation, Issue: Implications of stringent tax norms.
Context:
India’s proposed new Income Tax Bill (2025-26) aims to simplify tax law and enhance compliance. However, Section 247 of the draft has raised concerns over digital privacy and potential misuse of power during tax investigations.
Key Takeaways:
Income Tax Bill: Key features
- Proposal: Announced during Union Budget 2025-26 by Finance Minister Nirmala Sitharaman.
- Objective: Replace the old, cumbersome Income Tax Act with a simpler, clearer law.
- Draft features:
- Reduction of chapters from 47 to 23
- Section count reduced from 819 to 536
- Simplification of definitions, penalties, and tax rates.
- Section 247: Controversy Over Privacy Invasion
- It empowers tax authorities to access digital assets of a taxpayer, seize and inspect emails, social media accounts, online trading, cloud storage, etc.
- Authorities can override passwords or encryption during searches.
- Government rationale: Empower enforcement against tax evasion, especially in the digital and crypto economy.
Concerns:
- Privacy concerns: The move is viewed as a potential breach of the right to privacy. It violates K.S. Puttaswamy vs. Union of India judgement which violates Right to Privacy verdict.
| K.S. Puttaswamy vs. Union of India emphasised on a three-fold privacy test: Legality, Necessity, Proportionality. |
- Lack of oversight: Lacks a clear structure for accountability and oversight.
- Potential misuse: Could be misused without proper Standard Operating Procedures (SOPs).
- Legal challenge: Section 247 raised red flags in legal and accounting circles. Even though Parliament’s Select Committee (headed by Baijayant Panda) approved the section, it called for finer scrutiny.
- Public concern: Slippery slope to surveillance without adequate safeguards. It also risks undermining trust in tax authorities.
Measures needed:
- Codification: Codify clear operating frameworks for Section 247.
- Accountability: Ensure accountability in data access and searches.
- Limiting enforcement: Limit enforcement to cases with valid, documented suspicion.
- Standards: Adopt standard protocols, learning from past misuses (e.g., phone tapping cases).
Conclusion:
Even though the bill reflects a progressive reform in tax governance, trust must remain the cornerstone of India’s tax framework. Section 247 must be refined to prevent misuse and uphold citizens’ digital rights.
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