Your income tax refund for AY 2025-26 is delayed? Experts explain new rule behind holding back ITR refunds.
Your income tax refund for AY 2025-26 is delayed? Experts explain new rule behind holding back ITR refunds.

Revised Income Tax Manual Grants New Powers to Combat Tax Evasion

The Income Tax Department has unveiled its revised Search and Seizure Manual, 2025, empowering officers with significant authority to tackle tax evasion. Among the new capabilities is the ability to initiate Look-Out Circulars (LOCs) more frequently against serious tax defaulters and suspected evaders. Additionally, the department can now summon data from foreign crypto exchanges and access individuals’ credit histories to detect undeclared wealth.

Addressing Risks of Virtual Digital Assets (VDAs)

The new manual aligns with amendments from the Finance Act, 2025, marking a crucial move by the tax administration in response to the increasing risks associated with Virtual Digital Assets (VDAs), including cryptocurrencies and NFTs, as well as modern schemes of income concealment.

Frequent Use of LOCs Against High-Value Evaders

Under the revised manual, income-tax officers are now formally authorized to initiate Look-Out Circulars to prevent taxpayers under investigation from leaving the country. The Department can propose an LOC under conditions such as:

These LOCs require approval from a senior officer, typically a Principal Director or Director General, and must be processed through the Ministry of Home Affairs (MHA) along with the Bureau of Immigration (BOI) for enforcement at exit points like airports.

Powers to Summon Foreign Crypto Platforms & Seize Digital Assets

The revised manual operationalizes changes in Section 132(1) of the Income-tax Act, 1961, which now recognizes VDAs as items that can be searched and seized, placing them on par with cash, jewellery, and bullion. As a result, tax officers are now permitted to search for and seize:

  • Crypto wallets, NFTs, and private keys
  • VDAs stored on digital media like USB drives, mobile phones, laptops, apps, and cloud platforms

Importantly, officers may also issue summons to both Indian and foreign crypto exchanges to collect user-level data and transaction history. Advanced blockchain analysis tools will assist in tracing asset flows across wallets and exchanges. If a taxpayer is found to hold undeclared or disproportionately large digital assets (valued above ₹10 lakh), this triggers further investigation or search activities.

Credit Scores and Loan Activity Under Scrutiny

For the first time, the manual grants officers access to credit information from registered bureaus such as CIBIL and Experian. This capability enhances financial profiling and assists the department in identifying individuals whose financial activities may be inconsistent with their reported income. Indicators of concern include:

This new approach aims to increase targeting precision, highlighting cases of unreported income and suspicion of wealth accumulation.

Leveraging Technology and Data Analytics

The Department has embedded technology and data analytics into its investigation framework. Under the revised procedures, officers will:

  • Utilize tools to trace crypto transaction trails
  • Investigate financial behavior patterns using credit and loan data
  • Leverage third-party data to identify discrepancies between income declarations and lifestyle indicators

According to senior officials, the manual signifies a strategic shift in India’s tax enforcement policy, aligning with the rapidly changing financial landscape. “Today, wealth is not just in lockers or property. It’s in cloud wallets, mobile apps, and digital contracts. This manual empowers tax authorities with the legal and technological tools to combat those attempting to exploit the system,” a senior source conveyed to CNBC-TV18.

With these enhancements, the Income Tax Department is fortifying its ability to detect and disrupt sophisticated evasion strategies involving virtual assets, unreported financial activities, and non-compliance with summons.

While the powers granted to tax officers have been broadened, the manual emphasizes the importance of procedural compliance. Invasive measures such as LOCs and digital asset seizures require senior-level approvals and clear documentation to prevent misuse.

This revised manual represents a comprehensive upgrade to the Income Tax Department’s enforcement capabilities, endowing its officers with the necessary authority to address modern tax evasion threats with legal clarity, technological support, and real-time financial intelligence.

Sandeep Bhalla, Partner at Dhruva Advisors, noted that “the Revised Income Tax Search & Seizure Manual confronts contemporary tax evasion risks based on amendments initiated through the Finance Act, 2025. These changes respond to the evolving challenges posed by VDAs. The expanded definition under Section 132(1) now includes VDAs, enhancing the Department’s ability to identify and combat tax evasion effectively.