Chapter No. 03 - Salary - Gratuity - [Sec. 10(10)]

Average monthly salary in this case would be computed as under:

Total basic salary drawn during 10 months immediately preceding the month in which the employee is retired (i.e. from 1^st May 2014 to 28^th February 2015) : (8 x 26,000 + 2 x 26,500) = ₹ 2,61,000

Average basic salary (i.e. 2,61,000/10) (a)                                                    ₹ 26,100

Dearness Allowance of one month (b)                                                           ₹ 400

Commission of 10 months (i.e. 6% of 25,77,860)                                           ₹ 1,54,672

Monthly commission (i.e. 1,54,672/10) (c)                                                    ₹ 15,467

Average Monthly Salary (a + b + c)                                                                ₹ 41,967

Out of

1. ₹ 5,45,571 (i.e. 0.5 x 41,967 x 26)
2. ₹ 10,00,000
3. 6,50,000

₹ 5,45,571 being the least of the three sums, is exempt u/s 10(10)(iii).

The balance of ₹ 1,04,429 is taxable for the assessment year 2015-16.