Government to Tighten Tax Surveillance on Digital Assets Under New Income Tax Bill

Digital Transactions and Encrypted Messages to Face Stricter Scrutiny

The Indian government is set to strengthen tax enforcement on digital assets and transactions through the proposed Income Tax Bill, 2025, ensuring that income concealed through virtual platforms is brought under scrutiny. Finance Minister Nirmala Sitharaman, while addressing the Lok Sabha on March 25, highlighted the need for updated legal provisions to investigate digital assets, encrypted communications, and financial transactions conducted via digital platforms.

The Finance Minister revealed that encrypted messages on WhatsApp helped uncover Rs 200 crore in unaccounted money, while broader digital forensics investigations led to the discovery of Rs 250 crore in hidden assets. She also disclosed that officials have begun using Google Maps location history and Instagram accounts to track benami property ownership and illicit financial activity.

Legal Backing to Probe Digital Financial Transactions

The existing Income Tax Act, 1961, does not provide explicit provisions to investigate digital financial transactions, virtual assets, and encrypted communications. The proposed Income Tax Bill, 2025, aims to fill this gap by allowing tax officials to:

• Access encrypted communications on platforms such as WhatsApp, Telegram, and Signal

• Review cloud storage and enterprise software used to hide financial transactions

• Track digital asset exchanges, including cryptocurrency holdings

• Analyze digital footprints, including location data, for tax evasion evidence

The government’s move aligns tax enforcement with technological advancements, ensuring that virtual digital assets, including cryptocurrencies, do not escape scrutiny.

How Digital Forensics is Strengthening Tax Investigations

In recent years, digital forensics has emerged as a crucial tool in detecting financial crimes and tax evasion. Investigative agencies are increasingly relying on digital evidence to uncover unreported income and hidden financial transactions.

• WhatsApp messages played a key role in detecting Rs 200 crore in unaccounted money.

• Google Maps history helped track frequently visited locations where cash was stored.

• Instagram accounts were analyzed to establish links with benami property ownership.

These measures demonstrate how technology is transforming tax enforcement, allowing officials to identify unreported wealth and undisclosed financial transactions with greater accuracy.

Impact on Cryptocurrency and Virtual Digital Assets

One of the biggest areas of focus in the new Income Tax Bill is the regulation of cryptocurrencies and virtual digital assets (VDAs). The Finance Minister emphasized that crypto-related financial transactions will be under heightened scrutiny, with tax officials permitted to:

• Investigate transactions conducted on cryptocurrency exchanges

• Analyze digital wallets and cross-border crypto transfers

• Monitor peer-to-peer (P2P) crypto transactions

The government’s objective is to prevent tax evasion through decentralized financial platforms, which are often used to move assets anonymously.

Strengthening Direct Tax Collections and Compliance

The Finance Minister also provided insights into direct tax collections, stating that Personal Income Tax (PIT) collections have shown significant buoyancy. She reaffirmed the government’s confidence in fiscal estimates for FY26, despite the impact of recent tax relief measures.

Key highlights from the Finance Minister’s statement on tax collection:

• FY26 direct tax collection estimates are realistic, despite tax relief provisions.

• Compliance measures in the new tax framework will improve revenue collection.

• Enhanced digital tracking mechanisms will ensure that all taxable income is accounted for.

New Tax Framework to Replace Six-Decade-Old Income Tax Act

The Income Tax Bill, 2025, which is currently under review by a select parliamentary committee, seeks to replace the six-decade-old Income Tax Act, 1961. The bill introduces:

• Simplified tax structures to enhance compliance

• Provisions to tackle evolving digital tax challenges

• Stronger enforcement mechanisms to track undeclared digital income

With digital transactions becoming a key area of financial activity, the government is ensuring that tax laws evolve to reflect the changing economic landscape. The enhanced focus on digital tax surveillance is expected to increase transparency, prevent tax evasion, and boost tax revenues in the coming years.