The Income Tax Department, with the help of data analytics and other technological tools, has identified around 15,000 to 20,000 cases where people have allegedly used swapping provisions to understate their taxable income and pay less tax.
According to a report, this step is part of the department’s campaign to curb fake tax claims. In this sequence, the department has also contacted the employers and asked them to check for any discrepancy in Form 24Q related to TDS deducted from the salaries of the employees.
What is the matter?
The tax department is preparing to take action on cases where taxpayers changed tax exemptions and deductions in the original income tax return (ITR) and the revised or updated ITR filed later.
For example, some employees had claimed huge exemption on House Rent Allowance (HRA) in their original ITR, but later deleted it and claimed exemption on other allowances under Section 10(14) of the Income Tax Act. This section includes some special allowances related to travel, education or working in hilly areas.
Similarly, in some cases, taxpayers claimed donations given to research institutions in the updated ITR instead of donations given to political parties.
According to reports, the department’s internal investigation limit for such suspicious claims is between Rs 50,000 and Rs 1 lakh and 15,000 to 20,000 cases have been identified so far.
First opportunity, then action
Tax officials say that these cases can be investigated so that action can be taken against those who violate the rules. However, before taking any strict action, the department will run its Nudge campaign, under which taxpayers will be given a chance to correct their mistakes. Legal action may also be taken in serious cases.
What is swapping?
According to chartered accountant Suresh Surana, swapping is a situation when a taxpayer withdraws a tax claim which cannot be justified and adds another exemption or deduction in its place only for the purpose of availing tax benefits.
He says that it is not right to do so because every exemption and deduction of the Income Tax Act has its own purpose, eligibility, limit and documentary conditions.
HRA and Section 10(14) are not substitutes for each other
For example, HRA exemption under Section 10(13A) is available only if the employee is actually paying rent, is getting HRA in salary and fulfills the prescribed rules.
At the same time, Section 10(14) applies only to those special allowances which the employer gives for any special expense or circumstance. Therefore, no person can make one claim in place of another without proper basis and documents.
What can happen if you do this?
According to Surana, if there are no real facts behind a claim then the department may consider it as a false or artificial claim. Nowadays, the Income Tax Department is detecting irregularities by analyzing the patterns of Form 16, AIS/TIS data, salary information provided by the employer and old returns.
If a person’s claim does not match his employer’s records or appears unusual, he may face notice, investigation, reassessment or scrutiny.
Fine may be up to 200%
Making a wrong claim may result in additional tax, interest and penalty. In serious cases, it can be classified as under-reporting or misreporting.
According to Surana, a penalty of up to 200% of the tax payable can be imposed under Section 439 (old Section 270A) of the Income Tax Act 2025. Apart from this, tax and interest will also have to be paid separately.
What to do if a mistake has already been made?
If a taxpayer has already claimed wrong or fraudulent deductions and the deadline for filing amended or updated ITR has expired, then the options remain limited. Nevertheless, some steps can be taken to reduce the loss.
1. Deposit correct tax and interest promptly
Even if the deadline for rectifying the return has expired, the taxpayer should calculate the correct income and deposit the additional tax and interest as soon as possible. This shows his goodwill and voluntary compliance.
2. Ask for special permission from the Income Tax Department
The taxpayer can seek permission for correction in the return after the deadline by applying under section 239(3)(b) (old section 119(2)(b)). However, its approval will depend entirely on the discretion of the department.
3. Cooperate fully after receiving the notice
If the department finds a discrepancy and issues a notice, the taxpayer must provide complete information and withdraw the incorrect claim.
4. Try to reduce the fine by making voluntary disclosure
It has been seen in many cases that if the taxpayer pays the tax and interest before the notice is issued, then he has a better basis to reduce or oppose the penalty.
