Satya,
there are no explicit laws that govern this area. only people's deductions from what they read. the only point that has some clarity, that too only after the PF department has taken up cases against some large establishments, is that basic salary should not be less than the state minimum wages.
now this causes some additional confusion in the sense that in many states, minimum wages is already accounted for as Basic + (V)DA. can you then add another DA on top of this - is this also PF able?
in terms of allowances you can pay whatever you want - call it dancing allowance, or uniform washing allowance or haircut allowance - if you pay it each month, the PF/ESI inspectors will want you to deposit money against it. there are some allowances like CCA and Washing Allowance that dont attract PF as on date - but these keep changing
all in all there is very little clarity on these issues. the labour department says one thing, the factory inspector another, the PF people a third and ESI a fourth. for the moment, it is safe to assume the following to stay out of trouble:
1 keep your basic at least equivalent to minimum wages and pay PF on this amount
2 for people with salaries over 6,500 keep 50% as basic (ensure it is over minimum wages) and the balance as allowances
regards,
Kabir Luthra