The income tax department has reportedly identified around 15,000-20,000 cases where taxpayers have used “swapped provisions” trick to reduce their taxable income in a particular financial year.
The move is part of the tax department’s ongoing crackdown on bogus claims, under which it is examining cases where claims made in tax returns do not match employer records or other information available in its database, according to a news report by the Times of India.
What is ‘swapped provisions’ and how does it work?
‘Swapped provisions’ is not a term defined under the Income Tax Act. Broadly, it refers to a practice where a taxpayer withdraws one exemption or deduction claimed in the original income tax return () and replaces it with another in a revised or updated return, not because the underlying facts have changed, but solely to reduce their tax liability.
“The issue is not the act of revising the return itself, which is legally permitted but claiming a tax benefit without satisfying the eligibility conditions prescribed for that provision,” according to Nishant Shanker, tax and investment expert at Navraj Global Advisors.
Explaining the approach, he cited the example of an employee who initially claims a House Rent Allowance (HRA) exemption but later replaces it with an exemption under Section 10(14), even though the employer never paid such an allowance or the salary structure does not support it.
Similarly, a taxpayer may switch the category of a donation from one eligible provision to another merely to obtain a higher deduction, without the necessary factual or documentary basis.
“Since each exemption and deduction has its own statutory conditions, documentation and purpose, they are not interchangeable,” Shanker noted.
How is the I-T department identifying such cases?
According to the news report, the is using data analytics and other tools and sources at its disposal to identify such cases of ‘swapped provisions’ which aren’t a legal way of reducing net tax liability.
Meanwhile, Shanker also added that the tax department is identifying such inconsistencies through data analytics by reconciling ITRs with Form 16, Form 24Q, AIS, TIS and other third-party information.
What action will the I-T dept take against ‘swapped provisions’?
The news report said that the I-T department has set an internal threshold of ₹50,000 to ₹1 lakh for reaching out to taxpayers with suspected “swapped provisions” claims and has identified around 15,000 to 20,000 such cases.
The tax department officials also said they can take up these cases for scrutiny to ensure offenders face consequences.
However, before initiating any adverse action, the department plans to run its Nudge campaign, giving taxpayers an opportunity to voluntarily correct or explain their claims. Legal action may be initiated only in cases involving serious violations, the publication reported.
Commenting on the possible consequences, Shanker noted that where the incorrect claim is detected by the tax department, the consequences may include additional tax demand, interest, scrutiny and, depending on the facts, penalty.
Under the Income-tax Act, 2025, can extend up to 200% of the tax payable in cases involving misreporting of income, while genuine errors supported by facts may be viewed differently from deliberate false claims.
“Taxpayers should therefore retain adequate supporting documentation and respond promptly to any communication from the department,” he said.
What can a taxpayer do if they have already used claimed incorrect benefits?
If a taxpayer has incorrectly claimed a benefit through such swapping, the first step should be to assess whether the return can still be corrected by filing a revised or updated return, wherever legally permissible, the tax expert said.
“Voluntary correction, along with payment of the differential tax and applicable interest, generally places the taxpayer in a better position than waiting for departmental action,” he added.