Tax Planning for Telangana Businesses: State Incentives, Property and Structure

Tax planning principles are the same across India, but a Telangana business often has local factors to weigh: state industrial incentives, significant property decisions in a fast-moving real estate market, and the choice of structure as it grows. This guide covers them.

Note: this article covers the rules for FY 2025-26 under the Income-tax Act, 1961. The Income-tax Act, 2025 applies from tax year 2026-27, with renumbered provisions and some changes, so check the current position for later years.

State Industrial Incentives

Telangana's industrial policies offer incentives to eligible businesses, such as capital investment subsidies, reimbursement of stamp duty or power costs, and reimbursement of state taxes. For income tax, the treatment depends on the nature of the incentive:

• A subsidy given to meet the cost of an asset generally reduces the asset's cost for depreciation.
• Other incentives may be taxable as income.

Planning investments with incentive conditions and their tax treatment in mind avoids surprises, including if an incentive is later clawed back.

Property Decisions

Many Telangana businesses buy land or premises in and around Hyderabad. Decisions with tax consequences include:

• Whether to hold property in the business entity or personally, and lease it to the business.
• How the purchase is funded.
• The stamp duty value, which the Income-tax Act uses as a floor for sale consideration.
• TDS on the purchase, which the buyer must deduct and deposit.

Choosing a Structure

As businesses grow, the choice between proprietorship, LLP and company matters more. Local considerations include state registrations, stamp duty on conversions or transfers of property, and whether incentives are tied to the original entity.

Professional Tax and Payroll

Salary structuring for employees in Telangana should account for Professional Tax, and for the fact that employees under the new regime can't deduct it.

A Checklist for Telangana Businesses

1. Understand the tax treatment of each state incentive before relying on it.
2. Plan property ownership and funding with tax in mind.
3. Review structure before a restructuring or conversion.
4. Factor Professional Tax into salary structures.
5. Review plans against the Income-tax Act, 2025.

Getting Help

Think Filing advises Telangana businesses on tax planning, including state incentives, property and structure.