Tax Audit for Telangana Businesses: What Auditors Check on State Taxes and Payments

A tax audit follows the same Form 3CD everywhere in India. But several of its clauses touch state-level payments and local business practices, and that's where Telangana businesses often see disallowances. This guide covers the state angle.

State Taxes and Section 43B

Under Section 43B, taxes and duties are deductible only when actually paid. The tax audit report lists these payments. For a Telangana business, that includes:

• Telangana State GST, where GST is expensed rather than claimed as credit.
• Professional Tax — both the business's own enrolment tax and, as a liability, amounts deducted from employees.
• Property tax paid to GHMC or the local municipality.
• Other state levies and fees relevant to the business.

Amounts that were due but not paid by the return due date aren't deductible for that year. Clearing state dues before the return is filed avoids this.

Payments to Telangana MSMEs

Telangana has a very large number of Udyam-registered micro and small enterprises, and many businesses buy from them. Amounts owed to micro and small enterprises beyond the time allowed under the MSMED Act — generally 45 days where there's a written agreement — are disallowed until actually paid, and the tax audit reports them. Knowing which suppliers are MSMEs, and paying them on time, protects the deduction.

Cash Payments

Cash is still common in some sectors in Telangana, like agriculture-linked trade, construction and local services. Cash payments above the permitted limit to one person in a day are disallowed, and the tax audit reports them. It's worth moving routine supplier payments to banking channels.

Employee Contributions

Employees' PF and ESI contributions must be deposited by the due dates under the respective Acts to be deductible. Late deposits are reported in the tax audit and disallowed.

State Incentives

Businesses receiving incentives under Telangana's industrial policies — such as capital subsidies or tax reimbursements — need to treat them correctly for tax, since the treatment depends on the nature of the incentive. The tax audit report may require disclosure of how they've been accounted for.

A Checklist for Telangana Businesses

1. Pay state taxes and Professional Tax before the return due date.
2. Identify MSME suppliers and pay them within the time allowed.
3. Avoid cash payments above the limits.
4. Deposit PF and ESI contributions on time.
5. Get advice on the tax treatment of state incentives.

Getting Help

Think Filing carries out tax audits for Telangana businesses and helps them fix recurring disallowances.