The department is examining cases where claims made in tax returns do not match employer records or other information available with it.

Tax experts say the issue is not about correcting genuine mistakes in an income tax return, but about replacing one claim with another simply to get a lower tax outgo without meeting the eligibility conditions.

“Swapping provisions is not a term defined under the Income-tax Act but refers to taxpayers replacing one exemption or deduction with another in a revised or updated return to reduce their tax liability without satisfying the eligibility conditions,” said Nishant Shanker, tax and investments, Navraj Global Advisors.

What is ‘swapping provisions’ and how does it work?

A tax exemption or deduction cannot be replaced with another just because it provides a higher benefit. Each provision under the Income-tax Act has separate rules, eligibility requirements and documentation needs.

For example, a salaried employee may initially claim House Rent Allowance (HRA) exemption based on rent paid. Later, while filing a revised return, the taxpayer may remove that claim and instead claim another allowance under Section 10(14), even when such an allowance was not part of the salary structure or supported by employer records.

“Swapping provisions means replacing one tax claim with another unrelated exemption or deduction merely to reduce taxable income or claim a refund, even though the substituted claim is not supported by facts, salary structure or documents,” said Sudhir Kaushik, cofounder and chief executive officer (CEO), Taxspanner (a Zaggle company).

Parag Jain, chartered accountant & tax head at 1 Finance, explained that the practice generally involves changing claims between the original and revised return not because circumstances changed, but because the taxpayer found a way to show a lower tax liability.

“Cases have been found where taxpayers initially claimed HRA exemption and later substituted it with allowances under Section 10(14), such as conveyance or education allowances, which their employer had never actually paid,” Jain said.

How is the Income Tax Department detecting these cases?

The department is relying increasingly on technology-based checks instead of only manual scrutiny. Tax officials are comparing income tax return claims with multiple data sources, including Form 16, Form 24Q filed by employers, Annual Information Statement (AIS), Taxpayer Information Summary (TIS), Form 26AS and past filing patterns.

Mrinal Mehta, chartered accountant and joint secretary, Bombay Chartered Accountants’ Society (BCAS), said the tax system now reconciles returns against independently reported information.

“The return is now reconciled against a web of independently reported information — Form 16, employer Form 24Q, AIS, TIS, employer-reported salary breakup and the taxpayer’s own filing pattern across earlier years,” Mehta said.

Experts said common red flags include an HRA claim without supporting salary details or rent proof, Section 10(14) claims not appearing in Form 16, donation deductions without matching receipts, or major changes between original and revised returns.

Kaushik said the department is specifically looking for claims that do not match actual salary structures.

“Likely red flags include HRA claimed in the ITR but not supported by employer records or rent proof, Section 10(14) allowance claims not reflected in Form 16, donation claims not matching valid receipts and major changes between original, revised and updated returns,” he said.

Mistake or misreporting? Why documentation matters

Not every incorrect claim automatically means wrongdoing. Experts said the difference between a genuine mistake and deliberate misreporting depends on facts, intent and supporting documents.

“A taxpayer who claimed HRA, holds rent receipts and a rental agreement, but filed a revised return due to confusion stands on different ground from one who introduced allowances their employer never paid, with no documents to support the change,” Jain said.

If a claim is disallowed, the taxpayer may face additional tax payment, interest, refund adjustment, scrutiny or reassessment. In cases involving deliberate misreporting, penalties can be significantly higher.

Mehta said under the Income-tax Act, penalty provisions differentiate between under-reporting and misreporting. Under-reporting may attract a penalty of 50 per cent of tax on under-reported income, while misreporting can attract a penalty of 200 per cent of the tax payable.

“The documentation and the bona fides are what decide which side of the 50 per cent-versus-200 per cent line you fall on,” Mehta said.

What should taxpayers do if they made an incorrect claim?

Taxpayers who realise they have made an incorrect claim should correct it before the department initiates action, experts said.

Shanker advised taxpayers to rectify errors at the earliest by filing a revised or updated return wherever permitted and paying additional tax and interest due.

“If an incorrect claim is detected, the taxpayer may have to pay additional tax along with applicable interest and penalties in appropriate cases. Taxpayers should retain supporting documentation explaining the correction and respond promptly if the department seeks clarification,” he said.

Jain suggested reviewing recent tax filings to identify whether deductions changed between original and revised returns and whether those changes are supported by documents.

“If the return can still be revised, taxpayers should file a correction. If the revision window has closed, they should evaluate filing an updated return and pay applicable tax and interest,” Jain said.

Experts said taxpayers should maintain documents such as Form 16, rent receipts, donation receipts, employer confirmations and payment records.

The broader message for taxpayers is simple: deductions and exemptions should be claimed only when they are legally eligible, supported by documents and consistent with actual financial transactions.