Income-tax Act 2025: Section 247 allows digital searches, but not AI scrutiny, clarifies govt

With the rollout of the Income-tax Act, 2025 scheduled for April 1, a key provision—Section 247—has come into focus amid questions over its reach in the digital domain. The clause has triggered debate over whether it significantly expands the tax department’s authority to access online accounts and electronic records during investigations.

The issue was raised in the Lok Sabha, where Members of Parliament asked whether the provision allows wide-ranging entry into taxpayers’ digital spaces or permits the use of artificial intelligence (AI)-driven tools for scrutiny.

Addressing these concerns, the Finance Ministry clarified that Section 247 makes no reference to AI and does not grant any fresh or unfettered powers to authorities. The ministry emphasised that the provision is restricted to duly authorised search and survey proceedings and cannot be invoked for routine scrutiny, general data mining, or indiscriminate information gathering.

The Press Information Bureau (PIB) echoed this position, stating that Section 247 is designed to deal with serious offences such as tax evasion and undisclosed income. It underlined that comparable search and seizure powers already existed under the Income-tax Act, 1961, and that the 2025 legislation largely continues the established framework, albeit with updated language to reflect the digital environment.

What Section 247 covers

Section 247(1)(b)(ii) and (iii) refers to the provision of “reasonable technical assistance” during authorised search operations. It also allows income-tax officers to override access codes where necessary to execute a valid search.

The Finance Ministry has emphasised that Section 247 does not expand the department’s authority beyond the established search framework, but modernises the terminology to account for digital records and systems.

Providing a legal perspective, Rahul Charkha, Partner at Economic Laws Practice, said:  "Section 247 of the Income-tax Act, 2025, empowers authorized income-tax officers to undertake search and seizure operations where they have “reason to believe” that a person is in possession of undisclosed income or assets, or of books of account, documents, or information relevant to proceedings under the Act. These powers extend beyond physical premises and expressly encompass the digital environment."

He added: "The Act introduces the concept of a “computer system,” which includes laptops, desktops, tablets, and computers connected to servers, and also recognizes “virtual digital space,” which is defined broadly to include email and social media accounts, cloud and remote servers, online banking and trading accounts, digital wallets, crypto-asset holdings, and other similar electronic platforms. Accordingly, during a duly authorized search or survey, officers may examine and seize not only physical records and valuables but also any electronic record, data, or communication stored within such systems. This means a tax investigation could encompass WhatsApp chats, Gmail inboxes, cloud backups, and even data stored on overseas servers."

Digital infrastructure

Section 247 also outlines the procedure for accessing digital infrastructure. Taxpayers and any person in control of the relevant systems are legally required to provide necessary technical support, including passwords, access credentials, and other information needed to inspect books of account, documents, computer systems, and associated virtual digital spaces.

Charkha further said: "In the event of non-cooperation, the statute authorizes officers to disable or circumvent security features and access controls. This raises questions about whether the right to privacy of taxpayers is being compromised. The Government has clarified that the use of digital access powers is limited to officially sanctioned search or survey actions intended to target cases of serious tax evasion and does not permit routine or widespread monitoring of taxpayers’ online activity or electronic communications. In any case, a public interest litigation is currently pending before the Supreme Court, raising issues relating to the constitutionality and scope of these provisions. The outcome of these proceedings will likely influence how Section 247 is applied in practice."

With the new law set to be implemented shortly, the interpretation and judicial scrutiny of Section 247 are expected to shape how digital search powers are exercised under the evolving tax regime.