Decoding search and seizure under new income tax law: Should you be worried?

NEW DELHI: The Income Tax Act, 2025, set to take effect on April 1, 2026, continues to draw public scrutiny. A recent deliberation in Parliament has resurfaced concerns over Section 247, questioning whether the new law grants income tax authorities "unlimited powers" to access digital spaces using “artificial intelligence.”

Addressing the concerns, govt reiterated that the new law gives no additional powers. Replying to a question in the Lok Sabha, minister of state for finance Pankaj Chaudhary said section 247 “is in line with section 132 of the Income Tax Act, 1961.” The minister further clarified that section 247 or any related provision has no mention of “artificial intelligence”.

What is section 247?

Section 247 of Income Tax Act, 2025 empowers income tax authorities to uncover undisclosed income and property by authorising searches and seizure action when they have “reason to believe” non-compliance or concealment. Under the provision, even digital records can be accessed. However, it must be noted that search and seizure operations are procedural, require official sanctions, and such actions do not extend to routine income tax scrutiny and assessment.
Section 247(1)(b) reads:

“Where the competent authority, in consequence of information in his possession, has reason to believe that—

b. any person is in possession of any ... income or property which has not been, or would not be, disclosed, ... then the approving authority may authorise any Joint Director or Joint Commissioner or Assistant Director or Assistant Commissioner or Income-tax Officer, ... to ––

ii. require any person, who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record or any information in electronic form or on a computer system, to afford the authorised officer with such reasonable technical and other assistance (including access code, by whatever name called) as may be necessary to enable the authorised officer to inspect such books of account or other documents or such information;

iii. break open the lock of any door, box, locker, safe, almirah, or other receptacle or override the access code to any computer system for exercising the powers conferred by clause (i) where the keys thereof are, or the access to such building, place, etc., or the access code to such computer system, as the case may be, is not available.”

What is the concern?

While govt claims section 247 mirrors section 132 of Income Tax Act, 1961, certain provisions of sub-clause (ii) and (iii) are not explicitly mentioned in the 1961 law. This has raised concerns that the new law vests the income tax authorities with additional powers.

Is section 247 in line with section 132?

Sandeep Bhalla, partner at Dhruva Advisors, explains the new law safeguards the income tax department in case of non-cooperation in a search or seizure action. “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,” he said.

Bhalla maintains that the law facilitates access rather than expanding underlying authority. He argues the new law acknowledges that modern business records are 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,” Bhalla said.

“’Requiring technical assistance’ should be viewed as an enabling procedural tool aligned with technological progress rather than a substantive enlargement of search authority,” he added.

Regarding the interpretation of “technical assistance” in the sub-clause, Bhalla opined that it may include providing passwords, PINs, assistance in navigating software, retrieving cloud-stored data and other similar actions.

Is the AI concern well-founded?

As clarified by govt, there is no explicit mention of artificial intelligence in section 247. Bhalla says the law uses “technology-neutral language” in “technical assistance.” He said, “AI’s use, if any, would fall within the broader category of permissible technological aids, subject to legal safeguards.”

What is the current practice during search and seizure?

Although certain provisions of sub-clauses (ii) and (iii) had no mention in the Income Tax Act, 1961, income tax authorities have been investigating digital evidence for long. Bhalla said it has been a common practice by the income tax authorities to use digital forensic imaging tools, employ hard disk cloning utilities, extract emails, and decrypt software, among others.

Bhalla noted that while section 132 had no explicit mention of “electronic records”, courts reasoned that restricting seizure powers only to paper records would defeat the purpose of search provisions in a digital economy. “Courts adopted a purposive interpretation that recognised digital storage devices as simply modern repositories of information,” he said.