When an employee is working during the notice period, they are entitled to all allowances. What is the confusion in this? You are receiving the service of the person on notice period, and would it be proper to deny a part of their salary? It is acceptable if the situation involves needing to relieve them earlier or if they wish to be relieved earlier. In such cases, there is usually an agreed norm, i.e., pay basic salary and dearness allowance as notice pay and relieve them.
For deciding if anything can be recovered from the salary of an employee who absconds without serving the notice period, you must first determine whether the concerned employee is a worker or a manager. If a worker, check if there is any provision regarding the notice period for a worker in your certified standing orders. If your certified standing orders require a worker to give one month/three months' notice before leaving the company and a worker remains absent after submitting their resignation, then any pending amounts (like unpaid salary, leave encashment, unpaid bonus, etc.) due to them, except for their gratuity, can be adjusted against the notice pay. This applies to managers and other executives as well. However, if you do not have standing orders of your own and the concerned person is a worker with no supervisory rights, then you cannot deny any amounts due to them. This is because, to terminate a worker, the employer should give one/three months' notice as per the Industrial Disputes Act, but the Act is silent about the notice from a worker who wishes to leave the employer.
Again, gratuity cannot be adjusted against any sum due, including notice pay, from the employee. This is true for managers and executives as well.
Regards,
Madhu.T.K