The Commercial Taxes Department, Government of Telangana, has issued Circular No. 1/2026 dated August 18, 2026, laying down comprehensive instructions governing the use of Artificial Intelligence (AI) tools and other third-party online platforms by officers in the discharge of official duties. The Circular addresses confidentiality of taxpayer information, obligations under the Telangana Goods and Services Tax Act, 2017, the Digital Personal Data Protection Act, 2023, personal responsibility of officers and application of mind in quasi-judicial proceedings.
The Department has clarified that it is not opposed to the use of AI tools. Responsible use of such tools by officers is encouraged where it can improve the speed, consistency and quality of official work. At the same time, the Circular makes clear that the use of AI cannot be at the cost of taxpayer confidentiality, data security or the officer’s independent judgment.
The Circular notes that officers routinely handle highly confidential material, including returns, financial statements, invoices, bank particulars, e-way bill data, intelligence inputs, audit records, investigation and inspection files, statements recorded during proceedings, legal opinions and internal Government communications. Transmission of such information to publicly available or commercial AI platforms may amount to disclosure to a third party outside the control of the Department and could expose the information to storage, retention, review, misuse or unauthorised access.
The Department has emphasised that confidentiality obligations under Sections 152, 158 and 158A of the TGST Act, 2017 are binding on officers. The Circular states that taxpayer information collected or furnished under the law may be used and disclosed only in the manner permitted by statute or with the requisite consent, and that a private commercial AI service provider does not fall within the statutory exceptions merely because its use may be administratively convenient.
A key feature of the Circular is the fixation of personal responsibility on the officer concerned. Where an officer transmits taxpayer particulars to an external AI platform without legal authority or taxpayer consent, the breach is treated as the officer’s own act. Responsibility cannot be avoided merely because the material was uploaded by a personal assistant, stenographer, data-entry operator, outsourced staff member or another person acting at the officer’s instance.
The Circular states that unauthorised transmission of taxpayer information may entail disciplinary action under the Telangana Civil Services rules, possible criminal liability under applicable provisions of the TGST Act and other laws, and consequences under the Digital Personal Data Protection Act, 2023. It also cautions that such disclosure may adversely affect the underlying proceedings and expose the Department to legal challenge, claims for damages and adverse judicial comment.
The Department has separately stressed the importance of independent application of mind in quasi-judicial proceedings. Notices, discrepancy reports, assessments, adjudication orders and appellate orders must reflect the officer’s own reasoned appreciation of facts, evidence and law. Mechanical or unexamined reproduction of AI-generated material without independent verification may render an order vulnerable and will not discharge the statutory responsibility vested in the officer.
Officers have also been cautioned about the possibility of AI tools producing apparently fluent but factually incorrect material, including non-existent judgments, incorrect citations, inaccurate statutory references or invented factual details. Accordingly, every legal proposition, section, rule, notification, circular and case citation proposed to be used in an official order must be independently verified from the primary or authoritative source before the order is signed.
Under the operational instructions, the Circular imposes an absolute prohibition on entering taxpayer particulars into unauthorised AI platforms. No officer or staff member may type, paste, upload, scan, photograph, dictate, transcribe or otherwise transmit taxpayer-related information—including GSTIN, PAN, names, addresses, bank account details, returns, invoices, e-way bills, audit material, refund applications, investigation records, statements, internal notes or legal opinions—to a public or commercial AI tool unless the platform has been expressly authorised in writing by the Commissioner of Commercial Taxes or the Government of Telangana.
The Circular further prohibits officers from connecting or exporting departmental databases, reports, returns or information from systems such as the GSTN, Back Office application, e-way bill system or BIFA into any external system, application programming interface, browser extension or plug-in. AI-enabled browser extensions and plug-ins are also not to be installed on departmental computers. The same restrictions apply to personal mobile phones, laptops, e-mail accounts and personal cloud storage.
At the same time, the Department has identified legitimate and encouraged uses of AI. Officers may use AI tools for generic legal or procedural research, abstract questions of law, and assistance with language, structure, grammar and clarity of drafts, provided that no identifiable taxpayer particulars or case-specific facts are included and the output is verified against the primary source before being relied upon.
The Circular also directs officers, to the extent technically feasible, to delete any taxpayer-related data previously entered into AI platforms, remove associated chat histories and stored files, and disable settings that permit retention of inputs for model training. Supervisory officers have been tasked with periodically sensitising staff and ensuring compliance during inspections and reviews.
For institutional compliance, the Circular is required to be served upon every officer and staff member, with a signed and dated acknowledgement of receipt to be obtained in the prescribed form. The acknowledgement records that the officer understands the confidentiality obligations, the prohibition on unauthorised AI disclosure, personal accountability for breaches and the requirement that every notice or order reflect the officer’s own application of mind.
The instructions have come into force with immediate effect and will remain in force until further orders. Any deviation, whether through disclosure of confidential taxpayer information on public or commercial platforms or through orders reflecting non-application of mind, is to be viewed seriously.
The Circular can be accessed at: https://www.tgct.gov.in/tgportal/HelpDocuments/AI%20Circular-240826.pdf
