Internal discussions are on within the IT ministry over the implications of the recent move by the Facebook-owned messaging platform, they said.
The issue needs to be looked at, in detail, given that concerns have been raised by a large section of users including some top business leaders, they added.
WhatsApp, which has over 400 million users in India, counts the country among its biggest markets globally.
Sources further said that WhatsApp's policy update would also be evaluated in the context of the current legal framework.
While the IT ministry has not yet approached WhatsApp seeking an explanation on the matter, a decision on the same is likely to be taken soon.
WhatsApp had informed users about these changes through an in-app notification, last week. It said that users will have to agree to the new terms and policy by February 8, in order to continue using the platform.
This led to a user backlash and triggered memes on the internet over WhatsApp's alleged sharing of user information with Facebook. Many users have also started shifting to rival platforms like Telegram and Signal, and these platforms have seen millions of downloads globally in the immediate aftermath of the event.
While many tech leaders like Elon Musk advocated using other platforms like Signal, in India too a number of business leaders including Mahindra Group chairman Anand Mahindra, Paytm founder Vijay Shekhar Sharma and PhonePe CEO Sameer Nigam spoke of moving to rival platforms.
Mahindra said he had installed Signal, while Nigam said he had moved 1,000-plus 'PhonePe-rs' to Signal, and recreated all his workgroups and moved family groups.
Paytm's Sharma, who has in the past too questioned the rising clout and practices of foreign big-tech companies, had recently tweeted, "How long we will be taken for granted by such blatant double standards ? Self claimed ad claiming respect of our privacy v/s actual policy".
In the tweet, Sharma had shared a picture of WhatsApp ads in Indian dailies alongside a foreign media report that quoted WhatsApp as saying that European users do not have to share data with Facebook.
Amid the public furore, WhatsApp, on its part, has sought to assuage users' concerns saying its latest policy update does not affect the privacy of messages on the platform.
In a blogpost earlier this week, WhatsApp emphasised that it does not share users' contact lists or data of groups with Facebook for advertisement purposes.