Dear Salini ji,
To answer to your query, I am trying it in simple way as under:
In salary sheet, there are main four components. They are:
i. Basic inputs such as rate p.d.or p.m., days payable etc.
ii. Earnings
iii. Deductions &
iv. Net payable.
Earnings means various components of salary worked out on the basis of basic inputs. Components of salary may be Basic, DA / Sp. Allw, HRA and other allowances you give as per the terms of employment. The allowances may be Conveyance, Education, Medical, Washing, shift, Attendance, Leave Travel etc. You can give any kind of allowance. You can nomenclate it by any name depending upon your policy or depending upon your decision. There is no law which compel you to give any allowances other than HRA in some states. In Maharashtra you are liable to pay min. 5 % if you have more than 50 employees.
I repeat, by any law you are not liable to pay any allowance other than HRA in some states. You are liable to pay by law only Basic and DA or consolated salary which should not be less than minimum rate as declared by the local authority. This Basic & DA or consolated salary attract HRA payment and PF deduction. To my view, it is wrong to split the minimum rate as declared by the local authority in to Basic, DA and various allowances or components and deduct PF on lesser amount thus arrived on such split up.
Total of all earning components i.e. Basic, DA, HRA and other allowances is a Gross.
ESI, local Tax on Employment, Labour Welfare Fund, Income Tax all those things attract on Gross. All those things are deductions from Gross which are statutory in nature and depends upon applicability. There may be other kind of deductions which are non statutory in nature.