Friday, 24 January 2014

Centralized Processing Centre: Faster Processing of IT Returns Through Automation

The Income Tax Department (ITD)
The Income Tax Department (ITD), Ministry of Finance, is responsible for collecting Direct Taxes and administering the Income Tax Act and other direct tax statutes for the Central Government. With a view to maximizing revenue collection as also to provide quality customer service, ITD embarked upon large scale computerization and process automation. With the rapid increase in the number of income tax returns and a jurisdiction-based processing model, the Department encountered problems resulting in delayed processing of income tax returns.

            The Finance Act, 2008 empowered the Central Board of Direct Taxes (CBDT) to make a scheme for centralized processing of returns with a view to expeditiously determining the tax payable by, or the refund due to the assessees.

            Based on the recommendations of the Technical Advisory Group, the strategy adopted was that Centralized Processing Centre (CPC) at Bangalore would process paper and e-returns without any interface with taxpayers in a jurisdiction free manner using a partially outsourced model through a Service Provider (SP).

 The Establishment of the Centralized Processing Centre (CPC)- Rs. 255crore project- was approved by the Union Cabinet in February 2009 and work was awarded to M/s Infosys Technologies Limited on February 23rd, 2009. CPC moved in its facility on May 26th, 2009 and 56,000sq ft area on three floors of facility was completed by July 2009. First Return of Income was processed at CPC in October 2009, and full fledged processing commenced from January 2010.

 The specified objectives of the CPC Project are: To develop and implement a comprehensive system to increase efficiency, and effectiveness of ITD in processing, accounting and reconciliation of the returns filed; to set-up a central processing centre and achieve back office automation on an outsourced model for performing the non-core activities of ITD; to manage routine tax administration functions such as receipt, scanning, data entry, processing, issue of refunds and storage of IT returns in a centralised manner; to achieve economies of scale along with desired levels of quality and service level compliance for the outsourced activities to ensure efficiency and accuracy in service delivery; and to establish a scientific, systematic record storage and retrieval management system.

 The project envisaged benefits for the citizens as well as the Income Tax Department. For the citizens, reduction in compliance cost; taxpayer services in line with international best practices; empowerment through increased efficiency in discharging ITD’s function; better and centralised access to information; accuracy and timely clearance of all demands & refunds due and centralised system to address grievances and rectification requests and its tracking were the major benefits.

            On the other hand, the department would have gained by way of improved service delivery to citizens; standardised practices and procedures; centralised system to monitor and evaluate the status of returns; better accounting and reconciliation of taxes collected; capability to handle increased workload; convenient & speedy clearance of demands and refunds and centralised access to the information on tax collection.

Challenges and Implementation Strategy
 CPC, being a major transformational project, had to proactively tackle the several dependencies and risks to ensure operational smoothness.

On the technical sideselection of technology was a major challenge. To mitigate associated risk, a Proof of Concept (POC) was done using Oracle Rules Engine and more than 1 lakh returns were processed before release of RFP (Request for Proposal). As there was no precedence of outsourcing of records storage and its scientific management, 2 POCs were conducted one each at Delhi and Bangalore. Two leading Record Management Vendors participated in this exercise which lasted for almost 6 months. Data collected during POC was utilized in preparation of RFP and setting-out specifications and SLAs (Service Level Agreement).

Integration with legacy system i.e. Integration with Income Tax Department Applications System (ITD Apps) of which the Assessment Systems (AST) was a major component had been a major challenge. Many interfaces were developed along with control tablets to ensure that a return was processed only once and a tax credit was consumed only once.
          The new Financial Accounting system was conceived and designed as double entry accounting system. This system is not prevalent on Government departments and has been a path breaking innovation. This system ensures auto reconciliation between various accounts which is of immense help in enhancing compliance capabilities of the Department. New computer friendly IT Return Forms were designed which assisted in use of digitization technology solutions.

         In the selection of Business Model for CPCa comprehensive market study was conducted to list down available options. The choice was between Procurement model and MSP (Managed Service Provider) model. Keeping in view the past experience of SI projects (for setting-up data Centres), MSP model was adopted with all strategic controls with ITD.

TDS Mismatch has been one of the most important stumbling blocks in automation of processing task. To cleanse TDS database and to increase its correctness and completeness, several measures were undertaken. Some of these are: 26 AS statement (a statement of Tax payments) was pro-actively mailed to all Tax Payers; a new functionality to view 26 AS free of cost was provided on e-filing site; resolution of TDS mismatch was included in the Action Plan Target of Department as one of the targets; TDS wings were strengthened to resolve TDS mismatch; massive advertisement/awareness campaign was launched through various media; and revised matching guidelines were issued to enhance matching percentage.

         Taxpayer Services was identified as one of the main focus area. To reduce human interface with Department, following services were envisaged to improve service quality and enhance customer satisfaction: functionality for on-line submission of Rectification Requests; E-mail and SMS services; Call centre with more than 60 agents; a fully automated mail room solution to acknowledge, scan and monitor each and every written communication received from a Taxpayer; new and Improved Communication Templates to provide as much information to taxpayer as possible; and demand position with the department mailed pro-actively to taxpayers.

Change Management was a huge task as CPC is one of the biggest administrative reform ever under taken by the Department and it is a major Government Process Re-engineering project.

CPC Processes
 There are 14 services that have been implemented as part of the CPC solution which cover the functional domains of logistics, scanning and data entry, tax processing, tax accounting and data extraction, validation and reconciliation.

            The business processes/technology components involved and implemented are: Logistics, scanning, data entry/digitization, Tax accounting, interface with legacy systems, processing of returns, refunds, printing & despatch, dedicated on-site hi-tech post office, record management, call centre and advanced customer support

Impact of the Initiative
 CPC has reduced the processing time of IT returns considerably. As against average processing time of more than 12 months in past, CPC has succeeded to bring it down to around 65 days. Processing capacity has been augmented.  CPC has processed more than 4.15 crore returns in the last 3 years of operations. It is expected to process more than 1.8 crore returns in current year. This would be almost 70% of entire workload of department.

Faster Refunds
 CPC has processed more than 1.3 crore refund cases in last 4 years of operations. As a matter of priority, all refund cases are processed first without any discretion. All valid cases with refund cases of current year are expected to be processed by Jan 2014.

Interest on Delayed Refunds has reduced substantially
 As against average interest rate of more than 17% in F.Y. 2009-10, CPC has brought down the interest on delayed refunds to 4.77%. This has resulted in substantial savings for the Government.

Faster Settlement of Grievances
 CPC has processed more than 11.41 lakh rectification petitions out of 11.65 lakh. Average disposal time is around 90 days as against stipulated 180 days. Presently, close to 4300 calls are handled every day in 3 languages Kannada, English and Hindi.

Effective & Paper Less Records Management
 CPC has a dedicated record management module which has qualified for certification under ISO 15489. CPC is the first institution in India to achieve this distinction. It uses state of art scientific record management system using an out-sourced warehouse thus saving huge costs associated with storage of paper documents.

Promotion of e-filing
 Faster processing at CPC has given a big boost to e-filing of Income Tax Returns. E-filing registered an exponential growth in F.Y.2010-11 with 164.34 lakh as against 21.70 lakh in 2006-07. Thanks to faster and hassle free issue of refunds, e-filing of returns is growing 25% annually.

            Maintaining last year’s momentum, it is expected to cross 2.5 crore in current year representing nearly 75% of all returns received by the Department.

Release of Resources For Compliance Job
 CPC has a unique (MSP) model where top layer consists of IT Department officials. With only 35 member ITD team, CPC is handling more than 1/3rd processing workload of the entire Department. This has released a large work force which can now concentrate on more revenue yielding compliance jobs viz. Recovery, Surveys, Scrutiny, Investigation, Prosecution, TDS, Information/Intelligence collection etc.

Better Customer Service
 Customers are serviced through various ways including agent call centres, e-mails, SMS alerts, improved Communication.

Improved Public Image
 The CPC project has proved to be a major administrative reform initiative enabled by innovative and widespread use of technology. Its implementation is radically changing the way the Department works.

The CPC implementation has helped relocate a large part of the current non-discretionary workload from the 745 tax offices located in 510 cities across the country. With the intervention of the CPC model, a great deal of the existing distortions and shortcoming are getting removed. This will free valuable administrative resources of both manpower and physical infrastructure. Good quality service to tax payers from the CPCs in conjunction with a more compelling and effective compliance regime will produce visibly satisfactory tax outcomes.

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