Income Tax Act 2025's Section 247 Ignites Public and Parliamentary Scrutiny
The Income Tax Act, 2025, scheduled to become effective on April 1, 2026, continues to attract significant public attention and debate. Recent discussions in Parliament have reignited concerns regarding Section 247, with questions arising about whether this new legislation grants income tax authorities what some perceive as "unlimited powers" to access digital spaces, potentially utilizing advanced technologies like artificial intelligence.
Government Reiterates No Additional Powers Granted
In response to these mounting concerns, the government has firmly reiterated that the new law does not confer any additional powers to tax authorities. Addressing a query in the Lok Sabha, Minister of State for Finance Pankaj Chaudhary stated that Section 247 is "in line with Section 132 of the Income Tax Act, 1961." The minister further clarified that neither Section 247 nor any related provisions explicitly mention the term "artificial intelligence," aiming to dispel misconceptions.
Understanding Section 247: Scope and Provisions
Section 247 of the Income Tax Act, 2025 empowers income tax authorities to uncover undisclosed income and property by authorizing search and seizure actions when they have "reason to believe" non-compliance or concealment. This provision extends to digital records, allowing access to electronic data. However, it is crucial to note that such operations are procedural, require official sanctions, and do not apply to routine income tax scrutiny and assessment processes.
The specific sub-clauses of Section 247(1)(b) detail the authorities' powers:
- Sub-clause (ii) authorizes officers to require individuals in possession of electronic records to provide reasonable technical assistance, including access codes, to inspect such documents.
- Sub-clause (iii) permits breaking locks or overriding access codes to computer systems when keys or access are unavailable, ensuring effective execution of search powers.
Concerns Over Potential Expansion of Powers
While the government asserts that Section 247 mirrors Section 132 of the 1961 Act, concerns have been raised because certain provisions, particularly in sub-clauses (ii) and (iii), are not explicitly mentioned in the older law. This has led to fears that the new legislation might vest income tax authorities with additional, broader powers in the digital realm.
Expert Analysis: Codification Versus Expansion
Sandeep Bhalla, partner at Dhruva Advisors, provides insight into the legal nuances. He explains that the new law primarily safeguards the income tax department in cases of non-cooperation during search or seizure actions. "Even under Section 132 of the 1961 Act, authorities exercised search powers over electronic records. Section 247 merely codifies and clarifies operational aspects in a digital context," Bhalla stated.
Bhalla maintains that the law facilitates access rather than expanding underlying authority. He argues that it acknowledges the modern reality where business records are predominantly maintained in electronic form. "The phrase 'reasonable technical assistance' is primarily facilitative in nature. It enables authorities to effectively execute an already-existing power of search by ensuring practical access to digital systems," he added.
Regarding the interpretation of "technical assistance," Bhalla opined that it may include actions such as providing passwords, PINs, assistance in navigating software, retrieving cloud-stored data, and other similar measures, all aimed at streamlining procedures in line with technological advancements.
Addressing AI Concerns and Current Practices
As clarified by the government, there is no explicit mention of artificial intelligence in Section 247. Bhalla notes that the law uses "technology-neutral language" in referring to technical assistance. "AI's use, if any, would fall within the broader category of permissible technological aids, subject to existing legal safeguards," he said.
In practice, income tax authorities have long been investigating digital evidence, even without explicit provisions in the 1961 Act. Bhalla highlighted common practices, including the use of digital forensic imaging tools, hard disk cloning utilities, email extraction, and software decryption. Courts have historically adopted a purposive interpretation, recognizing digital storage devices as modern repositories of information, thus supporting such investigative methods.
Conclusion: Balancing Technological Progress with Legal Frameworks
The debate over Section 247 underscores the ongoing challenge of updating tax laws to reflect digital realities while maintaining transparency and safeguarding citizen rights. As the implementation date approaches, continued scrutiny and expert analysis will be essential to ensure that the provisions are applied fairly and within the bounds of existing legal principles.
