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The Income Tax Bill, 2025 (bill) significantly reforms prosecutions for wilful failure to file returns of income. This is set out in clause 480, corresponding to section 276CCC of the Income Tax Act, 1961 (act). Clause 480 applies when a taxpayer intentionally fails to file an income tax return (ITR) following a tax search and seizure. Prosecution may begin if the ITR is not submitted within 60 days of receiving a notice under section 158BC. The provision prescribes imprisonment of between three months and three years and a monetary penalty.

The bill classifies offences under clause 480, among others, as non-cognisable, bringing much-needed clarity and certainty to the arrest process that tax officials must follow. Unlike cognisable offences, for which arrest without prior judicial approval is permitted, non-cognisable offences must have judicial consent before an arrest is carried out. This amendment strengthens safeguards, ensuring a balanced approach between compliance and taxpayer rights.

Clause 491 of the bill requires prior approval from a senior tax official before a prosecution is launched, preventing previous arbitrary practices. Before, tax authorities had unfettered discretion under section 276CCC to prosecute a defaulting party, allowing them to proceed without supervisory authorisation. This is a move towards enhanced procedural supervision, ensuring greater accountability.

Clause 247 expands search and seizure powers. Tax authorities will be empowered to conduct searches and confiscate assets, financial records and electronic data if they suspect undisclosed income or non-compliance with tax notices. The bill grants tax officers the authority to override digital security measures, access electronic records and seize confidential communications. These expansive powers allow evidence discovered through digital forensics to trigger prosecution, as provided by clause 480. Individuals subjected to searches may be compelled to provide sworn statements that may later be used as evidence in legal proceedings.

The bill is silent on the treatment of unrelated personal data collected during a search and seizure. Concerns arise about privacy rights and procedural fairness. The absence of judicial supervision before accessing private digital communications raises concerns about potential overreach. The legal presumption that seized electronic records are accurate shifts the burden onto taxpayers to disprove allegations, which could lead to misuse of prosecutorial authority.

Another important amendment in the bill is in clause 476, which corresponds to section 276B of the act and relates to a failure to deposit tax deducted at source (TDS) with the government. Under section 276B, failure to remit TDS or taxes under chapter XII D or XVII B of the act is currently punishable with imprisonment for between three months and seven years and a fine.

Clause 476 retains similar punitive measures but introduces a vital exemption. This provides that the section shall not apply if the deducted tax is credited to the government’s account on or before the prescribed deadline for filing the corresponding statement. This change effectively provides an opportunity for rectification. Non-compliance will no longer be automatically criminalised if the delay is remedied within the statutory timeframe.

The introduction of this provision marks a shift from automatic prosecution to conditional enforcement, ensuring that taxpayers who rectify their defaults within the stipulated time are not subjected to harsh penalties. This change reduces the burden on prosecutors. It also aligns with the government’s broader agenda of reducing the criminalisation of tax-related defalcations in favour of focusing on ensuring compliance.

Although the bill introduces welcome changes streamlining prosecution under income tax law, it does little to assuage concerns about the expanded powers of search and seizure granted under clause 247, which links with clause 480. The absence of a mandatory judicial review, the intrusion into private digital spaces and the presumption of the accuracy of electronic records impose additional burdens on taxpayers. Although these powers have the laudable aim of preventing tax evasion, stronger safeguards are necessary to prevent misuse and ensure accountability of enforcement.

Aman Avinav is a partner at Phoenix Legal