Tax Exemption of Benefits Received by Employee Separated from Service Due to Health Condition

January 17, 1992 BIR RULING NO. 027-92 28 (b) (7) (B) 177-91 027-92 The Malayan Group of Insurance COMPANIES Yuchengco Building 484 Q. Paredes St., Manila Attention: Mr . Emmanuel F . Ligaya HRD Manager Gentlemen : This refers to your letter dated November 23, 1991 requesting for a ruling that the separation benefits to be paid to Mr. Alfredo F. Sarmiento by reason of health condition be exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. Documents submitted show that your employee, Mr. Alfredo F. Sarmiento, was certified by his Attending Physician, Dr. Josefina Dolores Azores to be suffering from: Right ear mild sensori-naural hearing loss Left ear Profound mixed hearing loss with poor discrimination and that said illness affects the performance of his duties and endangers his health if he continues working. In reply, please be informed that pursuant to Section 28(b)(7)(B) of the Tax Code, as amended, 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 gross income and shall be exempt from taxation under Title II of the Tax Code. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts which Mr. Sarmiento will receive from you as a result of his separation from the service of your company due to his aforesaid health condition are exempt from income tax and consequently, from 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. It is however, understood that this exemption does not include your payments of Mr. Sarmiento's salary. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue