India: The Supreme Court Of India On What Shall Constitute ‘Basic Wages'?

Last Updated: 6 March 2019
Article by AMLEGALS  

"Emoluments that are universally, ordinarily and necessarily paid to all shall be considered as a part of a Basic Wages"


The issue revolves around Employees' Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred to as 'the Act').

The common question of law before the Apex Court was:

"Whether special allowances paid by an establishment to its employees would fall within the expression "basic wages" under Section 2(b)(ii) read with Section 6 of the Act for computation of deduction towards Provident Fund?"


The brief facts of all the Appeals are as under:

Civil Appeal No. 6221 of 2011:

It was regarding an unaided school giving special allowance (SA) by way of incentive to teaching and non-teaching staff which was reviewed from time to time upon enhancement of tuition fee.

The authority under the Act held that the special allowance was to be included in the basic wage for deduction. The Single Judge set aside this order and the Division Bench allowed the appeal on 13.01.2005 while holding that the SA was a part of Dearness Allowance (DA) liable to deduction.

This order was recalled. Subsequently the Division Bench dismissed the Appeal to hold that the SA was not linked to the consumer price index and hence did not fall within the definition of basic wage. Thus, it was held that SA was not liable to deduction.

Civil Appeal Nos. 3965-66 of 2013:

In this appeal, the Appellant was paying basic wage along with variable dearness allowance (VDA), house rent allowance (HRA), travel allowance (TA), canteen allowance and lunch incentive. Deductions for PF were not made from the SA aforementioned.

The authority under the Act held that only washing allowance could be excluded from basic wage. The High Court partially allowed the Writ Petition by excluding lunch incentive from basic wage and the review petition against the same was dismissed.

Civil Appeal Nos. 3969-70 of 2013:

The Appellants were not deducting PF contribution on HRA, SA, management allowance and conveyance allowance by excluding it from basic wage.

The authority under the Act held that the allowances had to be taken into account as basic wages for deduction. However, the High Court dismissed the Writ Petition and thereafter a Review Petition was filed by the Appellant.

Civil Appeal Nos. 3967-68 of 2013:

The Appellant Company was not deducting PF contribution on HRA, SA, Management allowance and Conveyance Allowance by excluding it from basic wage.

The Authority under the Act held that the SAs formed part of basic wage and was liable to deduction. The Writ Petition and Review Petition filed by the Appellant were dismissed.

Transfer Case (C) No. 19 of 2019:

The Petitioner filed a writ petition against the show cause notice issued by the authority under the Act calling for records to determine if conveyance allowance, education allowance, food concession, medical allowance, special holidays, night shift incentives and city compensatory allowance constituted part of basic wage.

The Writ Petition was dismissed and a Writ Appeal was preferred against the same and which was transferred to this Hon'ble Court before the adjudication of the liability.


The relevant provisions of the Act which are required to be necessarily referred to are as under:

Section 2(b) of the Act:

"(b) 'basic wages' means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case] in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include:

(i) the cash value of any food concession;

(ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment;

(iii) any presents made by the employer;"

Section 6 of the Act:

"6. Contributions and matters which may be provided for in the Scheme

The contribution which shall be paid by the employer to the Fund shall be [ten per cent] of the basic wages, [dearness allowance and retaining allowance (if any)], for the time being payable to each of the employees

[(whether employed by him directly or by or through a contractor)] and the employees' contribution shall be equal to the contribution payable by the employer in respect of him and may, [if any employee so desires be an amount not exceeding [ten per cent] of his basic wages, dearness allowance and retaining allowance (if any), subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section]:

[PROVIDED that in its application to any establishment or class of establishments which the Central Government, after making such inquiry as it deems fit, may, by notification in the Official Gazette specify, this section shall be subject to the modification that for the words [ten per cent], at both the places where they occur, the words [twelve per cent] shall be substituted]:

[PROVIDED FURTHER that] where the amount of any contribution payable under this Act involves a fraction of a rupee, the Scheme may provide for the rounding off of such fraction to the nearest rupee, half of a rupee or quarter of a rupee.

Explanation [11 : For the purposes of this [section], dearness allowance shall be deemed to include also the cash value of any food concession allowed to the employee.

[Explanation 2 : For the purposes of this [section], "retaining allowance" means an allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services.]"


This Hon'ble Court held that the Act had defined "Basic Wage" under Section 2(b) to exclude dearness allowance and a few allowances mentioned therein. However, dearness allowance finds inclusion in Section 6.

The Hon'ble Court observed that the crucial test adopted to determine if any payment was to be excluded from basic wage, was one of Universality.

To elaborate on this point, the Hon'ble Court opined as follows:

"That the payment under the scheme must have a direct access and linkage to the payment of such special allowance as not being common to all."

This Bench took aid of the interpretation adopted by this Hon'ble Court in Bridge & Roof Co. (India) Ltd. vs. Union of India, (1963) 3 SCR 978.

In the aforementioned Judgment, it was explained that despite the use of the terminology "all emoluments" contained in definition clause 2(b) of the Act, there were certain exclusions laid down in sub-clauses (i) and (iii), to exclude those presents which would not be earned in accordance with the terms of the contract of employment.

Further, Sub-clause (ii) lies as an exception, the payments which are earned by an employee in accordance with the terms of his contract of employment.

Hence, even though no logical pattern can be determined for the basis of the exceptions in the three sub-clauses of Section 2(b) of the Act, it is conclusive that they must be earned by employees in accordance with the terms of the contract of employment.

Further, Section 6 includes dearness allowance for purposes of contribution to the PF. Conclusively, the basis of its exclusion under Section 2(b) and inclusion under section 6 is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose of contribution to PF.

This Hon'ble Court further referred to its judgment in Muir Mills Co. Ltd., Kanpur vs. Its Workmen, AIR1960 SC 985 wherein it was held that "any variable earning which may vary from individual to individual according to their efficiency and diligence would stand excluded from the term "basic wages".

Additionally, this Hon'ble Court referred to Manipal Academy of Higher Education vs. Provident Fund Commissioner (2008) 5 SCC 428, wherein it was summarized as follows:

  • The emoluments which are universally, ordinarily and necessarily paid to all employees are basic wages.
  • The payment specially availed by those who avail of the opportunity is not basic wage.
  • Any payment by way of a special incentive or work is not basic wage.  

The aforementioned summarization was upheld by this Hon'ble Court in Kichha Sugar Company Limited through General Manager vs. Tarai Chini Mill Majdoor Union, Uttarakhand, (2014) 4 SCC 37 while further specifying that, "when an expression is not defined, one can take into account the definition given to such expression in a statute as also the dictionary meaning".

Finally, the Hon'ble Court in The Daily Pratap vs. The Regional Provident Fund Commissioner, Punjab, Haryana, Himachal Pradesh and Union Territory, Chandigarh, (1998) 8 SCC 90 also opined that the Act was a piece of beneficial social welfare legislation and must be interpreted as such in its judgment.


This Hon'ble Court held that the establishments herein had failed to demonstrate that the allowances in question herein were being paid to its employees as an incentive for production resulting in greater output and were not paid to all employees across the board.

The Hon'ble Court further elaborated that in order for the amount to exceed beyond basic wages, it has to be established that the workman concerned had become eligible to get this extra amount by working beyond his normal work that he was required to put in.

Conclusively, it held that the wage structure and components of salary examined in the current appeals had been correctly determined by the Appellate Authority under the Act and the respective High Courts as a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution to the PF account of the employees.

Therefore, the Appeals by the Provident fund Commissioner were allowed and the Appeals by the establishments were dismissed.


This decision has categorically laid down "two way tests" for basic wages as below:

Test of Generality:

The naturally bundled components which are implied, common and universal in nature.

Test of Exclusivity:

Exclusive and/or special components are subjective in nature, unique, uncommon and are entitled with/for some and in certain situations alone.

Decisive Factor:

The nature of an allowance and why it is given will be a decisive factor.

The conditions which are sine qua non to such incentives will seal its fate.

Purview of Basic Wages:

The basic wages will be the set of implied or natural or universal components which always come as a bundle in remuneration during the course of employment.

When such components can be differentiated and are an additional or surplus to the general or universal or implied component then it will be fit to be classified under SA.

The onus will always lie upon an employer to show conclusively with reasoning as to why a component is outside the ambit of the basic wages and to be called as a SA.

It is most appropriate to describe this judgment as a progressive one that initially seems to incur short term sacrifices but brings with it long term benefits for all employees benefited by this Act.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions