CBDT Issues New Digital Evidence Manual Empowering Tax Officials to Trace Offshore Servers and AI Data

The Central Board of Direct Taxes (CBDT) has released a revised Digital Evidence Investigation Manual internally on Tuesday, giving tax officials new powers and guidelines to trace offshore servers, access digital data, and collect evidence from AI-based platforms. This is the first update in nearly ten years and comes at a time when most financial records are stored electronically.

According to the new manual, tax officials can now use provisions of the Companies Act to obtain information stored abroad. Companies are required to keep a daily backup of their financial records on servers located in India, even if the main data is hosted overseas.

If a foreign service provider holds the data, companies must inform the Registrar of Companies (ROC) about the name and address of the person in control of the records. This rule ensures that investigators can access important financial data without facing restrictions from foreign jurisdictions.

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The manual also advises officials to use modern tools to trace digital trails, such as server logs, email records, and user access details. It introduces specific guidance on handling data stored on cloud platforms, cryptocurrency wallets, and AI-powered communication tools. These are now recognized as valid sources of digital evidence.

The revised manual supports upcoming changes in the Income Tax Act, 2025, which will take effect from April 1, 2026. The new law, through Section 247, allows tax officials to search any location where digital evidence is suspected to be stored and to question anyone who can access such systems.

In situations where data cannot be immediately retrieved from foreign servers, officials have been instructed to preserve it until recovery is possible. They may also use international cooperation channels like the G-8 24/7 Network of INTERPOL to secure evidence.

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