Dear Vibhor,
The leave encashment is to be done on gross salary including Basic Salary, HRA, DA, Conveyance, and all payments given to employees under the head of Salary/Wages as per statutory Regulations, Leave Rules, and the Industrial Act of 1948. This head does not include Overtime, Meals, Incentives, or any other allowances that are not regularly paid under the head of salary/wages.
However, many companies manipulate the laws and do not pay reimbursements on gross salary. The Karnataka High Court issued a judgment in 2007 stating that manipulation of laws by companies is not acceptable in the court of law, and decisions are made against the company.
I hope this answers your queries.
Regards