Income-Tax Bill empowers taxman to ask for access to electronic systems

Scrutinising crypto, other virtual digital assets may become easier

In a move that could make it easier to scrutinise cryptocurrency and other virtual digital assets, the new income-tax Bill introduced in the Lok Sabha on Thursday empowers tax authorities to demand codes for access to electronic systems during surveys and searches.

 

Section 247 of the Bill broadens search and seizure powers of income-tax authorities, covering access not only to physical and local assets but also digital records and virtual spaces.

 

Section 253 allows tax officers to request “technical and other assistance, including access codes” during surveys, making it mandatory for taxpayers to provide access to Cloud spaces, computers and electronic records. According to this Section, the income-tax authority could ask businesses “to provide the necessary technical and other assistance (including access code) to enable the inspection of such books of account or other documents, or computer system, or any other material connected with such systems, including virtual digital space, as may be required and which may be available at such a place”.

 

A finance ministry official said these clauses would allow tax officers to request access to systems but not give them any new powers. The official pointed out that, given the common practice of keeping financial records electronically, the Bill had defined "necessary facility to inspect" to include providing technical assistance, such as access codes.

 

“It is clarified that the corresponding provisions of Sections 247 and 253 of the proposed Bill have not expanded the powers of the authorised officer/income tax authority in this regard,” the official said in response to a Business Standard query.

 

“However, in view of the nearly universal business practice of maintaining accounts and other financial records on electronic media, the words ‘necessary facility to inspect’ have been further qualified to expressly include providing technical assistance, including by way of access code,” the official further explained.

 

Earlier, under the Income Tax Act, 1961, Section 132 allowed searches and provision of physical and digital documents, cash, and assets, while Section 133(6) on power to call for information, as well as 133A on surveys, permitted officers to seek information but did not mandate allowing digital access. The new Bill, according to experts, makes it compulsory to grant access to digital data, enhancing enforcement capabilities.

 

"Modern-day businesses and taxpayers use electronic means for recording and storing accounting records. Given this reality, it was imperative for the tax enforcement to have legal basis to get access to such electronic records. While under the current 1961 (income-tax) regime, the access was otherwise made available, the 2025 proposal gives the ask a legal basis. The instances involving usage of crypto and other virtual digital assets for tax evasion also warrant access to electronic records for tax-enforcement agencies,” said Anand Bathiya, president of the Bombay Chartered Accountants’ Society.

 

According to Vivek Jalan, partner, Tax Connect Advisory Services, Section 133A of the Income Tax Act, 1961, only requires that such accounts, data, etc, be made available to the officer on survey duty. However, the clause 253 in the new Bill seems to widen the powers of the officer on survey duty by providing that the "access code", which inter alia would mean ID/passwords, be made available to the officer to enable the inspection of such books of account or other documents, or computer system, or any other material connected with such system, including virtual digital space.