Author: Amrendra Kumar Yadav, Faculty of Law, Campus College of Commerce, Arts and Science, Patliputra University, Patna
Abstract
The Income-tax Bill, 2025, introduced to replace the Income-tax Act, 1961, aims to modernize tax administration, enhance compliance, and curb tax evasion using advanced technology. The bill proposes stricter tax filing rules, expands the powers of tax authorities for investigation, and introduces AI-based monitoring of digital transactions. While these measures promise better tax collection and efficiency, they have sparked concerns regarding privacy, misuse of power, and lack of judicial oversight. This article critically examines the key provisions of the new bill, comparing them with the old tax law, analysing their implications on taxpayers’ rights, and discussing the constitutional challenges it may face. The article concludes by highlighting the necessary reforms to ensure that the bill balances tax enforcement and individual privacy.
Introduction
The Income-tax Act, 1961, has been India’s primary tax legislation for over six decades. However, with rapid economic growth, globalization, and digital transactions, loopholes in the old tax system have allowed tax evasion, black money circulation, and financial fraud to persist. To address these issues, the Income-tax Bill, 2025, has been introduced, focusing on modernization, digitalization, and AI-driven tax compliance.
While the bill introduces much-needed reforms, it also expands the investigative powers of tax authorities, raising concerns about privacy violations and surveillance. Critics argue that the bill, in Its current form, grants excessive powers to tax officials, which could violate the fundamental rights of taxpayers.
The key debate surrounding the bill is: Does it strike a fair balance between tax enforcement and individual rights, or does it overstep constitutional boundaries, leading to an era of financial surveillance? This article examines the provisions, benefits, concerns, and legal implications of the bill, comparing it critically with the Income-tax Act, 1961.
Key Provisions and Critical Comparison with the Income-tax Act, 1961
The Income-tax Bill, 2025, introduces several changes aimed at strengthening tax compliance and reducing evasion. However, some of these provisions significantly differ from the Income-tax Act, 1961, raising concerns about their impact on taxpayers.
Expansion of Search and Seizure Powers
The Income-tax Act, 1961, allowed tax officials to conduct searches only on physical premises (such as homes, offices, and bank lockers) if there was suspicion of tax evasion.
The Income-tax Bill, 2025, expands these powers to include digital devices, emails, social media activities, and online transactions.
Critical Analysis: While this provision aims to tackle modern tax fraud methods, it raises privacy concerns as tax authorities can now access personal and financial digital data without prior judicial approval.
Digital Monitoring of Taxpayers
Under the Income-tax Act, 1961, tax monitoring was primarily done through bank records and financial statements submitted by taxpayers.
The Income-tax Bill, 2025, introduces AI-driven monitoring, which tracks online transactions, e-commerce spending, and digital wallets to detect potential tax fraud.
Critical Analysis: Although this enhances tax compliance, it also risks mass surveillance and potential misuse of personal financial data.
The old tax law relied on manual audits and investigations, which were often slow and error-prone.
The new bill introduces automated fraud detection, which uses AI to identify suspicious transactions and imposes automated penalties.
Critical Analysis: While this reduces tax fraud, it also increases the chances of wrongful penalties due to errors in AI algorithms.
Mandatory Digital Filing and Verification
The Income-tax Act, 1961, allowed both manual and digital filing of tax returns.
The Income-tax Bill, 2025, makes e-filing mandatory for all taxpayers, with biometric and digital verification.
Critical Analysis: While this ensures faster processing, it poses challenges for taxpayers with limited digital access and raises data security risks.
Elimination of Judicial Oversight in Tax Investigations
The Income-tax Act, 1961, required judicial approval for certain tax investigations.
The Income-tax Bill, 2025, removes this requirement, allowing tax authorities to conduct searches and seizures independently.
Critical Analysis: This provision increases efficiency but raises the risk of abuse and harassment by tax officials.
Privacy Concerns and Legal Challenges
The expansion of tax enforcement powers under the new bill has led to concerns about constitutional violations, particularly of Article 21 (Right to Privacy).
Right to Privacy and Supreme Court Rulings
In Justice K.S. Puttaswamy v. Union of India (2017), the Supreme Court ruled that the Right to Privacy is a fundamental right.
The Income-tax Bill, 2025, raises privacy concerns as it allows the government to monitor digital transactions, emails, and online behaviour without judicial oversight.
Potential for Misuse of Power
Without independent checks and balances, tax authorities may harass individuals and businesses under the pretext of tax investigation.
The lack of appeal mechanisms against wrongful penalties makes it difficult for taxpayers to challenge unfair tax assessments.
Global Standards and Best Practices
In the United States, tax surveillance by the IRS requires court approval.
In the European Union, tax monitoring is regulated under GDPR, which ensures privacy protection.
The Income-tax Bill, 2025, lacks such safeguards, making it prone to misuse.
Conclusion
The Income-tax Bill, 2025, brings much-needed modernization to India’s tax system, leveraging AI, automation, and digital compliance to enhance tax collection. However, its expansion of tax authorities’ powers, lack of judicial oversight, and potential privacy violations raise serious concerns.
While strict tax enforcement is necessary, it must be balanced with taxpayers’ rights. The bill must incorporate:
Judicial approval for tax investigations.
Data protection laws to prevent financial surveillance.
Independent review mechanisms for wrongful tax assessments.
Without these safeguards, the bill risks becoming a tool for financial surveillance rather than a fair tax reform.
FAQS
Q1. What is the primary aim of the Income-tax Bill, 2025?
It aims to modernize tax enforcement using AI-driven monitoring, digital compliance, and stricter penalties.
Q2. How does it compare with the old tax law?
Unlike the Income-tax Act, 1961, the new bill expands digital surveillance, eliminates judicial oversight, and mandates AI-driven tax scrutiny.
Q3. Does the bill violate the Right to Privacy?
Yes, by allowing tax authorities to access digital records without judicial approval, it may violate Article 21 of the Constitution.
Q4. What safeguards should be introduced?
The bill must include judicial oversight, data protection laws, and taxpayer appeal mechanisms.
Q5. What is the global perspective on tax surveillance?
Countries like the U.S. and the EU have strict privacy laws to regulate tax surveillance, unlike the unrestricted powers granted in this bill.
References
Income-tax Act, 1961 – Government of India.
Income-tax Bill, 2025 – Draft Proposal by the Ministry of Finance.
Justice K.S. Puttaswamy v. Union of India (2017) – Supreme Court Judgment on Right to Privacy.
GDPR (General Data Protection Regulation), EU – Guidelines on Digital Data Protection.
