BIR Ruling

August 24, 1976 Gratuity Benefits in the Form of Accumulated Vacation and Sick Leaves Considered Income With reference to your claim for refund of P1,285.73 representing 10% of P2,857.38 which you claimed to have been erroneously paid under Presidential Decree No. 23, I have the honor to inform you that said payment is found to be valid. Hence, we find no basis to grant aforestated claim for refund. It appears from the certification presented by you that the amount of P12,857.38 represents your gratuity from the Armed Forces of the Philippines corresponding to your ten (10) months accumulated leave for the period from December 23, 1971 to October 17, 1972. Such being the case, the same is considered part of your income and, therefore, subject to income tax under the law. Gratuity benefits in the form of accumulation leave, unlike retirement benefits which are exempted from all kind of taxes under the Armed Forces Retirement Act (R.A. No. 340 as amended by R.A. No. 2310), are considered income under Section 29 of the Tax Code. This Office in a similar set of facts has already ruled that "terminal leave pay or the payment of the money-value of the accumulated vacation and sick leaves to a retiring government employee under Republic Act No. 1616 as amended is subject to income tax" (B.I.R. Ruling No. 432, s. of 1958, dated August 14, 1958). Moreover, we even advised recipients of U.S. Social Security Pension and terminal leave pay to avail of the benefits of the tax amnesty in the event that they failed to include such amount in their income tax return, thus: "The recipient can avail of the benefits of tax amnesty under Presidential Decree No. 23, as amended by Presidential Decree No. 67, and as implemented by Revenue Regulations No. 15-72 dated December 11, 1972, by declaring the total amount of U.S. Social Security Pensions and terminal leave pay, which he failed to declare for internal revenue tax purposes in any calendar year prior to 1972 in the notice and return required under Section 6 of Revenue Regulations No. 15-72 on or before March 31, 1973 and pay the 10% tax due thereon. In view thereof, your claim for refund has to be, as it is hereby, denied. Enclosed are the documents submitted by you to this Office: Original of the Official Receipt No. 698811, dated March 31, 1973, and the duplicate copy of the Tax Payment Acceptance Order. cdtech