Provident fund schemes

The two possible schemes that allow for savings on income taxes are (well, these are not really tax savings schemes, but retirement plans)

1. General Provident Fund (GPF): A minimum of 6% of your basic pay is deducted as a contribution. The scheme provides a pension after retirement or for a nominee upon death of the employee. Membership restricted to faculty.
2. Contributing Provident Fund Gratuity (CPFG): A minimum of 8.13% of your basic pay is deducted as a contribution. The institute makes a matching contribution.

Faculty can avail of only one of the above schemes. The money in your account, under either scheme, accrues interest as determined by the Govt. of India (9% per annum - Sept. 2002 rates). Partial withdrawal is permited up to 75% of the amount, or up to 90% of the total if within 1 year of retirement. (Are withdrawal amounts taxable?) Withdrawal amounts are taxable, but the interest earned is generally exempt. One can also take interest-free loans from the accumulation. Well, it is actually your money and when you take a loan, the loan amount will not earn interest and this lost interest is your interest cost. There are also specific provisions to convert a loan into a withdrawal. Technically, the GPF scheme is a defined benefits scheme while the CPFG scheme is a defined contributions scheme. In GPF, you have a defined benefit (ie) 1/66 of your last drawn salary for every year of service you have put in (maximum of 33 years). To get this, you contribute 6% of your basic pay. IIT contribution is notional and in the form of years of accummulated service; thus, your GPF account balance will show only your contribution plus accrued interest. You will get your account statement once a year, sometime after the fiscal year closing in March. For faculty positions, since Ph.D. is an essential requirement, you get five years of service as credit for having the Ph.D. Thus, 28 years of service will qualify you for the full pension of 50% of last drawn salary. In the CPFG scheme, whatever you contribute plus the institute matching earns an interest and is shown as such in your annual account statement. At the time of retirement, the accumulated lumpsum is available to you. In either scheme, you can contribute more than the minimum to grow the size of the retirement kitty and also as a tax saving mechanism. There are also other related items like gratuity and commuted pension (worry about those as retirement approaches).