A new departmental circular permits limited AI use but offers little practical guidance, leaving Telangana tax officials uncertain how to improve efficiency without exposing taxpayer data.
Officials in Telangana’s Commercial Taxes Department are finding themselves in an awkward middle ground: encouraged to use artificial intelligence for routine work, yet warned so sharply against mishandling data that many are unsure what is actually safe. According to a report in The New Indian Express, the department has already seen officers using AI informally to draft discrepancy reports, notices and orders, as well as to analyse, translate and summarise case files.
That tension sits at the heart of Circular No 1/2026, issued on 18 August in an attempt to reconcile efficiency gains from AI with the confidentiality of taxpayer information and the requirements of India’s Digital Personal Data Protection Act, 2023. The circular says the department welcomes responsible use of AI to improve speed, consistency and quality, but officials say its practical guidance is thin. Instead of setting out a clear framework for safe use, it largely focuses on prohibitions and the consequences of crossing them, leaving field officers uncertain about how to use the technology without risking a breach.
The restrictions are sweeping. The circular bars officials from entering taxpayer data into third-party AI systems, linking departmental databases through application programming interfaces or browser extensions, or using private devices and personal accounts to handle official records. It allows only limited uses, such as generic legal research and basic language or grammar improvements to drafts. As described in the report, the department also warns that even hypothetical queries may be risky if they could expose confidential material, while offering little practical advice on how to work around that danger.
That uncertainty matters because India’s data protection law is intended to create a broader framework for lawful digital data processing while protecting personal information. Legal summaries of the Digital Personal Data Protection Act, 2023, note that it was designed to balance privacy rights with permitted processing and to provide penalties for violations. In Telangana’s tax department, however, the result appears to be a cautious culture in which the burden of compliance rests heavily on individual officers, even as the administration appears to be pushing towards greater digital efficiency.
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