Dear friends,
For the sake of a perspicacious analysis and a free discussion on the subject-matter, I think that let us first keep aside the laws relating to wages and compensation for the inclusion or exclusion of certain allowances in the total pay-outs to an employee by the employer under the contract of employment is dependent mostly upon the purpose/objective of such laws. Wages/salary to an employee is the total value of the monetary consideration payable for his work/service. Bifurcation of this wages/salary into basic and allowances is an administrative exercise to facilitate smooth mobilisation of labor as well as reduction in the consequential indirect financial commitment of the employer. Therefore, allowances form an integral part of the wages/salary structure unless they are in the form of compensation to the expenses defrayed by the employee because of the special nature of his duty/job.
Coming to encashment of leave, it is a concession conferred upon the employee for not availing of certain type of statutory leave that can be accumulated to a certain limit either periodically by organizational practice/ convention or on the termination of his employment. As far as I am aware of, no Indian Labor Law provides for periodical surrender of leave for cash benefit though the cash payment of the unavailed portion of certain leave is made compulsory on the termination of employment. Thus, by foregoing his leave, the employee helps the continuous work flow of the employer who otherwise has to engage a substitute. Therefore, in case of surrender of unavailed portion of leave at his credit, the employee is entitled to all the heads of his salary components other than those in the nature of specific allowances which could be excluded if he is actually absent like travelling, lunch/tiffin, heat allowances as if had he been present for work.