Exclusive | New I-T manual allows frequent LOCs, crypto exchange summons, and credit score access

The Income Tax Department has revised its Search and Seizure Manual, 2025, giving officers expansive new powers, including the authority to initiate Look-Out Circulars (LOCs) more frequently against serious tax defaulters and suspected evaders, summon data from foreign crypto exchanges, and even access individuals’ credit histories to detect undeclared wealth.

The manual—aligned with amendments introduced through the Finance Act, 2025—is a major step by the tax administration to address rising risks associated with Virtual Digital Assets (VDAs) such as cryptocurrencies and NFTs, as well as other modern modes of income concealment.

Frequent Use of LOCs Against High-Value Evaders

The 2025 manual formally empowers income-tax officers to initiate Look-Out Circulars to prevent taxpayers under investigation from fleeing the country. The Department can now propose an LOC in cases where:

• A taxpayer is unresponsive to repeated summons or notices, especially in high-value search matters, or
• There is credible intelligence suggesting a flight risk to avoid investigation.

Such LOCs require approval from a senior-level officer—typically a Principal Director or Director General—and must be processed through the Ministry of Home Affairs (MHA) and the Bureau of Immigration (BOI) for activation at exit points like airports.

Powers to Summon Foreign Crypto Platforms & Seize Digital Assets

The revised manual operationalises changes in Section 132(1) of the Income-tax Act, 1961, which now legally recognises VDAs under the scope of items that can be searched and seized, on par with cash, jewellery, and bullion.

This means tax officers can now search for and seize:

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

Crucially, officers can also issue summons to both Indian and foreign crypto exchanges to gather user-level data and transaction history. Blockchain analysis tools will help trace the flow of assets across wallets and exchanges. If a taxpayer is found to hold undeclared or disproportionately large digital assets (above ₹10 lakh), this can trigger further investigation or search action.

Credit Scores, Loan Activity Now Under Tax Lens

For the first time, the manual permits officers to access credit information from registered credit bureaus such as CIBIL and Experian. This adds a powerful layer to financial profiling of taxpayers and helps the department identify individuals showing financial behaviour inconsistent with declared income.

Examples include:

• High credit card usage or frequent loan sanctions despite modest reported income
• Defaults on EMIs or large outstanding loans with no corresponding tax disclosures
• This capability is expected to sharpen targeting accuracy, flagging cases of unreported income and suspect wealth accumulation.

Using Data Analytics, Financial Behaviour to Detect Evasion

The Department has embedded technology and data analytics at the core of its modern investigation architecture. Under the revised procedures, officers will:

• Use tools to trace crypto transaction trails
• Examine financial behaviour patterns using credit and loan data
• Leverage third-party data to detect mismatches between income declarations and lifestyle indicators

Senior officials say the manual reflects a strategic shift in India’s tax enforcement policy to keep pace with fast-evolving financial ecosystems.

“Today, wealth is not just in lockers or property. It’s in cloud wallets, mobile apps, and digital contracts. This manual gives the taxman the legal and technological backing to go after those trying to game the system,” a senior source told CNBC-TV18.

With these changes, the Department is strengthening its ability to detect, deter, and disrupt sophisticated evasion techniques using virtual assets, unreported financial activity, and non-compliance with summons.

Legal Backing & Procedural Safeguards

While the powers have been expanded, the manual also ensures that all invasive actions like LOCs or digital asset seizures are undertaken with senior-level approvals and clear documentation, ensuring procedural compliance and preventing misuse.

The revised manual marks a comprehensive upgrade of the I-T Department’s enforcement machinery, equipping officers to respond to the new-age tax evasion threats with legal clarity, digital forensics, and real-time financial intelligence.

Sandeep Bhalla, Partner, Dhruva Advisors, says, “The Revised Income Tax Search & Seizure Manual addresses modern Tax Evasion Risks. It is based on the idea which was initiated as part of the Finance Act, 2025, which introduced several significant amendments to the search and seizure provisions under the Income-tax Act, 1961, specifically designed to address the evolving challenges posed by Virtual Digital Assets (VDAs) such as cryptocurrencies and NFTs. Notably, the definition of “books of account, documents, money, bullion, jewellery or other valuable article or thing” under Section 132(1) has been explicitly expanded to include VDAs. In alignment with these legislative changes, the Department has issued the revised Income Tax Search & Seizure Manual, 2025, which introduces substantial procedural and technological upgrades. These enhancements aim to equip the Investigation and Enforcement Wings to more effectively detect, deter, and disrupt modern tax evasion mechanisms.”