Digital transactions and encrypted messages to come under strict scrutiny

The Indian government is set to strengthen tax enforcement on digital assets and transactions through the proposed Income Tax Bill, 2025. This will ensure that income concealed through virtual platforms is brought under scrutiny.

Finance Minister Nirmala Sitharaman, while addressing the Lok Sabha highlighted the need for updated legal provisions to investigate digital assets, encrypted communications, and financial transactions conducted via digital platforms.

In her revelations, the Finance Minister said 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.

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

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