BIR Ruling No. 021-10

July 30, 2010 BIR RULING NO. 021-10 Sec. 32 (B) (6) (b); BIR Ruling No. 143-98; BIR Ruling No. DA-041-98; BIR Ruling No. DA-461-05 Callos Law Office Rms. 424-425, Republic, Super Market Bldg., Rizal Avenue, F. Torres Street, Soler Street Sta. Cruz, Manila Attention: Atty. Napoleon I. Callos Counsel Gentlemen : This refers to your letter dated June 4, 2010 requesting in behalf of your client, Avelina B. Labita, for a ruling that the separation benefits due to redundancy are exempt from withholding tax. It is represented that Avelina B. Labita was an employee of Ortigas & Company located at 9th Floor Ortigas Building, Ortigas Avenue, Pasig City; that in support of your request, the following documents were submitted, to wit: a Notice of Termination due to Redundancy attached as Annex "A",and a separation pay computation dated April 19, 2010, attached as Annex "B". In reply, please be informed that pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee shall not be included in the gross income and shall be exempt from taxation under Title II of the Tax Code. Accordingly, this Office hereby holds that any and all amounts to be received by Avelina B. Labita as a result of her separation from the service of Ortigas & Company are exempt from income tax and consequently from the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended. The payment of salaries, however, is subject to income tax and consequently to withholding tax. (BIR Ruling No. DA-078-2000 dated February 2, 2000) Moreover, the terminal leave pay, i.e. , the accumulated vacation and sick leave credits which is part of the tax-exempt separation pay is also exempt from tax. (BIR Ruling No. DA-041-98 dated February 6, 1998) HcaATE This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue