BIR Ruling [DA-198-97]

May 5, 1997 BIR RULING [DA-198-97] Mr. S Thijssen 34 Cagayan de Oro Street Alabang Hills Village Muntinlupa, Metro Manila S i r : This refers to your letter dated January 31, 1997 stating that upon retirement an employee may receive a one time lump sum pension or a monthly pension for the rest of his life. In connection therewith, you are requesting clarification whether retirement benefits paid in monthly pension will be subject to income tax since Section 28 (b) (7) (A) of the Tax Code, provides in part that "provided, further, that the benefits granted under this subparagraph shall be availed of by an official or employee only once." In reply thereto, please be informed that Section 28 (b) (7) (A) of the Tax Code, as amended, provides in part as follows: "SEC. 28. Gross Income . "(a) . . . "(b) Exclusions from gross income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: "(7) Retirement benefits, pensions, gratuities, etc . "(A) Retirement benefits received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer; provided, that the retiring official or employee has been in the service of the same employer for at least 10 years and is not less than 50 years of age at the time of retirement; provided, further, that the benefits granted under this subparagraph shall be availed of by an official or employee only once . . . (Emphasis supplied) The phrase "provided, further, that the benefits granted under this subparagraph shall be availed of by an official or employee only once" means that the retiring official or employee shall not have previously availed of the privilege under a retirement benefit plan of the same or another employer. (Sec. 1, Revenue Regulations No. 1-68) It does not refer to the mode of the payment of the retirement pay i. e., whether in lump sum or a monthly pension for life. In view thereof, the retirement benefits received by officials and employees of private firms pursuant to Section 28 (b) (7) (A) of the Tax Code, as amended, whether paid in lump sum of in monthly pension for life, are exempt from income tax and consequently from the withholding tax prescribed by Section 72, Chapter 10, Title II of the Tax Code, as amended by B. P. Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. cdta Very truly yours, SIXTO S. ESQUIVIAS IV OIC, Assistant Commissioner (Legal Service)