The End of Privacy: How the New Tax Bill Turns Your Phone into an Open Book

While accessing YouTube and social media recently, I came to know about the strict provisions and expanded powers granted to the Income Tax Department under the new Income Tax Bill, 2025, which is going to be implemented from FY 2026 – 27, effective from 1^st April 2026. 

Hence, I thought to gather information on this and share it with my network. While gathering the information, I was shocked to learn that the IT Department can effectively bypass your constitutional right to privacy to track your transactions. This may lead to the exposure of non-financial private information such as your personal photos, chats, and location history leaving taxpayers with almost zero digital secrecy.

We are moving from an era of "voluntary compliance" to "Evidence-Based Enforcement." I gathered the information on such critical provisions we need to know.

1. The New "Digital Search" Powers (Clause 247)

The most controversial change is the redefinition of a "search." Previously, tax officers seized physical files or cash. The new Bill introduces the concept of "Virtual Digital Space."

• Total Access: This definition covers your email accounts, social media profiles, cloud storage (Google Drive, iCloud), mobile devices, and encrypted messaging apps.
• The "Codebreaker" Power: If a taxpayer refuses to provide a password during a search, the authorized officer is empowered to "override the access code" (hack/break the password) to gain entry.
• No "Intimation" Required: During a search operation, officers do not need your permission to access this data. If you are uncooperative, they can bypass your consent entirely to clone your device.

2. The "84% Tax" Trap (Section 115BBE)

You may have heard rumours about an "84% tax." This is real and it applies to Unexplained Income. Under Section 115BBE, if the Department finds an asset (cash, gold, or a digital investment) for which you cannot explain the "Source of Funds," you are not taxed at your normal slab rate (30%). You are taxed at a flat 60%.

• The Calculation of Ruin:
• Base Tax: 60%
• Surcharge: 25% of the tax (which adds 15%)
• Health & Education Cess: 4%
• Effective Rate: ~78%
• The Penalty Kicker: If the income is not voluntarily disclosed in your return and is found during a search/survey, an additional penalty can push the total liability up to 84%.
• No Deductions: You cannot claim any expense or basic exemption limit against this income. If you have ₹10 Lakhs of unexplained cash, you may be left with less than ₹1.6 Lakhs after the department is done.

3. "Source of Funds" Scrutiny

The days of buying property or luxury cars with "savings" are over unless those savings are documented.

• The Trigger: High-value transactions (credit card bills > ₹10 Lakhs, property purchases, foreign travel) are automatically reported to the ITD via the Statement of Financial Transactions (SFT).
• The Inspection: Officers are now authorized to question the "Source of Funds" for these expenses. If your declared income is ₹12 Lakhs but you bought a car worth ₹25 Lakhs, you must prove where the extra money came from. If you cannot, it is treated as "Unexplained Income" and taxed at the 84% rate mentioned above.

4. Responsibility of the Taxpayer (Not the CA)

A crucial clause in the new regime emphasizes that the primary liability lies with the individual, not their Chartered Accountant (CA) or Tax Return Preparer.

• The Myth: "My CA filed it, so it's his fault."
• The Reality: If your return contains a fake deduction (e.g., a bogus political donation or inflated HRA) to get a refund, you will face the legal action, penalty and potential prosecution. You cannot shift the blame to your agent. Ignorance of the law is no longer a valid defense.

Conclusion: Transparency is the Only Shield

The Income Tax Bill 2025 (effective FY 2026-27) has effectively removed the walls of financial privacy. As responsible citizens, we must adapt.

1. Check your AIS: Ensure your declared income matches the government's data.
2. Separate Your Lives: Adopt a "Clean Phone Policy." Do not keep business/financial records on personal devices used for private family matters.
3. Document Everything: Every high-value purchase must have a clear, traceable banking trail.

Disclaimer: This article is based on information I gathered on the provisions of the proposed Income Tax Bill, 2025 and existing Section 115BBE norms. Please treat it as information only and not the advice. Please do consult a tax advisor for specific legal advice.

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