Hidden data abroad? Corporate law now lets tax officers access it fully

Under the new Income Tax Act 2025, tax officers get wider powers from April 2026, allowing them to question anyone with access to records during searches

The Income Tax department is stepping up digital checks in a bid to close gaps as more firms use foreign servers and cloud services. According to a report in The Economic Times, agency officers have been told to use company law rules to find and recover data often stored abroad.

 

Recent amendments to the Companies Act, 2013, require firms to maintain daily electronic backups of their books of accounts and related documents on servers located in India. Even if companies use foreign service providers, they must disclose to the Registrar of Companies (ROC) the name and address of the person who controls these records abroad, the news report said.

 

The Central Board of Direct Taxes (CBDT), in its updated digital evidence investigation manual, has asked tax officials to factor in these requirements during probes. The earlier version of the manual was released nearly a decade ago and has now been overhauled to align with new corporate rules and evolving technologies.   

Stronger powers under new I-T law

 

Tax officers are also set to gain wider investigative powers under the new Income Tax Act, 2025, which comes into force from April 1, 2026. While existing provisions already permit officers to question individuals in possession of records during a search, Section 247 of the upcoming law broadens this authority, the report said.

 

The revised section allows officials to examine anyone present at the search site who can access electronic systems or data. It also permits entry into premises where electronic devices or servers suspected of holding relevant information are located.

 

Tax authorities are being trained to track digital footprints such as server logs, email trails, and user access patterns to uncover possible tax evasion.

 

In cases where critical information is stored on offshore servers, the manual directs officials to preserve data until recovery is possible. To counter common disputes during searches such as claims that seized pen drives were planted, the manual advises tax officers to rely on forensic USB logs from laptops or other devices to establish prior usage, the news report said.