Income Tax (No. 2) Bill, 2025

Why in News?

The Lok Sabha passed the Income Tax (No. 2) Bill, 2025 during the Monsoon Session.
The Bill replaces and significantly condenses the Income Tax Act, 1961, while expanding certain enforcement powers of tax officials.

Background

Income Tax Act, 1961 – the principal legislation governing direct taxes in India for over six decades.
In February 2025, Union Finance Minister Nirmala Sitharaman introduced a revised Bill to simplify and rationalise the law.
The Bill was referred to a Select Committee chaired by Baijayant Panda.
Recommendations submitted on 21 July 2025 → Government withdrew earlier version → Introduced updated Income Tax (No. 2) Bill, 2025.

Key Features of the New Bill

1. Structural Simplification

2. Broadening Powers in Search & Seizure

Any person in possession/control of digital records must:
- Provide access codes/passwords.
- Assist authorised officers in accessing data.
Authorised officers can override access codes if not provided voluntarily.
Access applies to emails, social media, messaging apps (e.g., WhatsApp), and other electronic records.

3. Rationale by Select Committee

Digital evidence is crucial in tax evasion cases.
Password non-disclosure is a common hurdle.
Strengthened powers aim to tackle concealed income and money laundering.

4. Opposition & Dissent Notes

Congress MP Amar Singh – warned against “very wide-ranging” powers to access all personal digital data.
RSP MP N.K. Premachandran – argued provisions are:
- Arbitrary, excessive powers.
- Risk of misuse.
- Potential infringement of Right to Privacy (Puttaswamy v. Union of India, 2017).
Suggested retaining original 1961 Act provisions.

Constitutional & Legal Dimensions

Article 21 – Protection of life and personal liberty → includes Right to Privacy.
Puttaswamy Judgment (2017) – Privacy is a fundamental right; restrictions must satisfy:
1. Legality – backed by law.
2. Necessity – legitimate state interest.
3. Proportionality – least intrusive means.
Possible challenge: whether new search powers satisfy the proportionality test.

Advantages Claimed

Concerns & Criticism

Possible Safeguards

Clear rules on authorisation level for search.
Independent review before accessing personal communication.
Stronger data protection protocols (alignment with Digital Personal Data Protection Act, 2023).
Parliamentary oversight or judicial warrant in sensitive cases.

Old vs. New Provisions — Income Tax Law

Aspect	Income Tax Act, 1961 (Old)	Income Tax (No. 2) Bill, 2025 (New)
Length	~5.12 lakh words	~2.59 lakh words
Chapters	47	23
Sections	819	536
Tables	18	57
Formulae	6	46
Language & Structure	Complex legal drafting	Simplified & rationalised format
Search & Seizure (Electronic Data)	Access to physical & electronic records, but no explicit provision for overriding passwords	Explicitly mandates taxpayers to share access codes/passwords; empowers officials to override access codes to emails, chats, social media
Powers in Electronic Search	Dependent on taxpayer cooperation	Officials can forcibly bypass security if taxpayer refuses
Basis of Law	Built over decades with amendments	Fresh drafting incorporating Select Committee recommendations
Privacy Concerns	Fewer direct conflicts due to absence of explicit override powers	Potential conflict with Right to Privacy (Puttaswamy judgment, 2017)
Legislative Process	Amended through periodic Finance Acts	Introduced Feb 2025 → Reviewed by Select Committee (Chair: Baijayant Panda) → Updated Bill passed Aug 2025