Income Tax Dept identifies 20,000 ‘swapped provisions’ cases: How to correct your ITR before penalties?

The cases were identified using data analytics and information available with the department, and affected taxpayers are being advised to voluntarily correct their tax position before stricter action is initiated, while the internal threshold for addressing taxpayers with such suspicious claims is Rs 50,000 to Rs 1 lakh, reportedly said by the Income Tax Department. 

Accordingly, the department has contacted employers and asked them to look into possible discrepancies on Form 24Q pertaining to the TDS they withheld from their employees’ salaries.

This indicates that the Income Tax Department’s latest compliance drive serves as a reminder that claiming tax benefits under incorrect provisions can prove costly. 

If you’ve already filed your ITR, here’s what “swapped provisions” mean, why they are problematic, and what you should do if you think you’ve made this mistake.

Swapped provisions in Income Tax: Everything taxpayers need to know

Although ‘swapping provisions’ is not a statutory expression under the Income-tax Act, it is being used to describe situations where a taxpayer withdraws one tax benefit and substitutes it with another without independently meeting the conditions of the substituted provision. 

“For instance, if a taxpayer realises that the HRA exemption claimed is not admissible and subsequently substitutes it with any other deduction or exemption without being eligible, such a claim would not be legally sustainable. Every exemption and deduction under the Act has its own eligibility conditions and documentary requirements, and cannot be interchanged to achieve a tax benefit,” commented Akhil Chandna, Partner, Global People Solutions Leader, Grant Thornton Bharat. 

Given the increased use of technology-driven risk assessment, including cross-verification of AIS, TDS statements, employer filings and other third-party information, such inconsistencies are now significantly easier for the tax authorities to identify and result in tax demand, interest, penalties and scrutiny proceedings.

Swapped provisions refer to cases where a taxpayer claims tax deductions or exemptions under the wrong section of the Income-tax Act, or shifts a claim between sections in a way that is not permitted by law, solely to reduce tax liability. 

In simple terms, this means using one provision in place of another even though the facts do not support it. For example, a taxpayer may try to claim a deduction twice, claim the same investment under two different sections, or report an expense or exemption under a more beneficial provision than the law permits.

“This kind of misreporting is risky because the Income-tax Department increasingly cross-checks returns with salary data, TDS records, AIS, SFT information obtained from banks, and other digital trails. If the claim does not match the underlying records, the mismatch can trigger scrutiny, demand notices, or disallowance of the benefit,” said CA Chandni Anandan, Tax Expert at ClearTax.  

Taxpayers should remember that deductions and exemptions are only available when the legal conditions are met. A tax-saving claim unsupported by adequate documentary evidence can quickly result in a tax demand, along with interest and possible penalties.

Used swapped provisions in your ITR? Here’s how you can fix it

Taxpayers who realise they may have made such an error should first carefully review the filed return and reconcile it with salary slips, Form 16, AIS, Form 26AS, proof of investment, and bank statements. 

“If the return is still within the permitted revision period, the most straightforward way to correct the mistake is generally to file a revised return with the accurate details. If the return has already been processed and an intimation or notice has been issued, the taxpayer should respond within the stipulated time and, where required, pay the additional tax along with applicable interest,” stated CA Chandni Anandan. 

It is important not to ignore the issue. Even minor discrepancies can escalate if the department has already detected a mismatch. 

“Taxpayers should review all exemptions and deductions claimed on their return against the supporting documents available. If any claim is found to be incorrect, they should evaluate whether it can be rectified by filing a revised or updated return, wherever permissible under the Act, and discharge the resulting tax and applicable interest,” said Akhil Chandna.

“Taxpayers should correct the return before it develops into a demand. Where a deduction was claimed but was never actually eligible, the taxpayer should voluntarily accept the correction and pay the difference rather than attempting to defend an incorrect claim,” commented CA Chandni Anandan. 

If a notice or e-campaign communication has already been received, it should be responded to with proper facts and documentary evidence within the prescribed timeline. Voluntary correction at the earliest generally places the taxpayer in a stronger position than waiting for departmental action.

Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Tax laws and regimes are subject to frequent changes by the government. Readers should verify details with official Income Tax Department notifications or consult a Chartered Accountant before making any financial decisions.    

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