The tax helpline of Cleartax.com hasn’t stopped ringing since the morning of 9 November when Indians woke up to demonetisation of Rs 500 and Rs 1,000 notes. “People are calling up to know how they can declare the cash they hold without incurring a tax liability,” says Archit Gupta, Founder and CEO of the tax filing portal.Tax professionals say that honest taxpayers have nothing to fear. “If you have Rs 500 and Rs 1,000 notes lying with you, there is no reason to panic if you can explain the source of the cash,” says Mumbai based tax and investment expert Balwant Jain. You can go and deposit it in your bank or exchange it for new notes (see box). But, as tax officials have repeatedly warned, the cash you deposit in the bank must match the income declared in your tax return.“We would get the details of accounts in which more than Rs 2.5 lakh have been deposited. Any mismatch with income declared by the account holder will be treated as a case of tax evasion,” Revenue Secretary Hasmukh Adhia said last week.Misreporting of income invites a penalty of 200% of the tax payable under the new Section 270(A) of the Income Tax Act. Those depositing Rs 3-5 lakh will not face too much problems because the tax and penalty will be within reasonable limits. But those with a larger sum may have to pay a huge sum as penalty. The effective tax for someone depositing Rs 20 lakh is 63.5% and it keeps rising as the amount increases.“Under the Income Declaration Scheme which ended on 30 September, they would have paid only 45% tax and no questions asked. Now they will have to answer a lot of questions and pay a higher tax. Even then, there is no immunity from prosecution,” says Sudhir Kaushik, Co-founder and CFO of tax filing portal Taxspanner. com. He points out that Prime Minister Narendra Modi had repeatedly exhorted people to come clean under the Income Declaration Scheme.Chartered accountants and tax consultants are in high demand as people with cash seek ways to get around the ban on high denomination notes. Tax professionals are charging anywhere between 5% and 25% to suggest strategies that can convert unaccounted cash into legitimate money, which can then be safely deposited in the bank account. Here are some of the hacks being used:Cash can be shown as money saved by the housewife out of the monthly household budget. A homemaker can also show a reasonable amount as her personal pocket money. There is no fixed amount mentioned in the tax laws about how much money can be saved like this, but it has to be a reasonable amount and should be commensurate with the total household income and monthly expenses. If the taxpayer earns Rs 80,000 a month and the household expenses are Rs 40,000, his wife should be able to put away Rs 8,000-10,000 every month.The tax department would launch a scrutiny if the amount saved exceeds 20-25% of household budget.There has been a surge in the number of people (especially homemakers and college students) who earn from home tuitions or cookery classes. “This is a common trick that people use to show income for their wives and adult children,” says a Delhi-based chartered accountant. An income of up to Rs 2.5 lakh a year can be shown as earned from giving tuitions. Tax professionals are encouraging people to file tax returns of the past two years (2014-15 and 2015-16) to make the case even more airtight. Tax laws allow delayed returns to be filed and there is a small 1% penal interest charged for every month of delay in case there is some tax due. “If the individual has not been filing tax returns, this is a good time to file the previous years’ returns and get on track,” says Gupta of Cleartax. This retrospective honesty will allow such taxpayers to report a higher income this year.If the income reported is too high, the tax department could scrutinize the returns and ask the assessee to furnish the names of students. In extreme cases, they will also investigate the daily routine of the assessee who claims to be giving tuitions to 20-30 students.Another common trick is to show the cash as gift received from relatives. Gifts from certain specified lineal relatives are not taxable if the recipient is an adult. However, the amount shown as gift should be reasonable and commensurate with the overall economic status of the household. A family with a monthly income of Rs 1 lakh may get cash gifts of about Rs 40,000-50,000 in a year.If the amount shown as gifts exceeds reasonable limits, tax department may ask for names of giver and scrutinize their source of income.Those who tied the knot this year or whose children had their mundan ceremony recently are also in luck. “Wedding and mundan ceremonies are two occasions when gifts from non-relatives are also tax-free. They can show the cash as gifts received on these occasions,” says Chartered Accountant Minal Agarwal. However, the sum shown as gift should be reasonable and commensurate with the overall economic status of the family. Also, this is a double edged sword which can cut both ways. “If the wedding was a lavish affair where a lot of cash was received, the tax department could also ask for the source of the money spent on the wedding,” says Kaushik of Taxspanner.If the amount exceeds reasonable limits, tax department may ask for names of givers and scrutinise their source of income.Small businessmen, entrepreneurs and even salaried people can utilise cash to pay advance wages to employees and vendors. There is no limit to how much cash can be given out like this but it should be reasonable, lest it creates an inconvenience to the recipient.Once given 2-3 months’ advance payment, employees may be tempted to switch jobs. Instead, it is better to give loans with proper paperwork.