Benefits Received from GSIS and Retirement Gratuity Received by Govt. Officials and Employees Exempt from Income Tax

May 3, 1985 BIR RULING NO. 064-85 029-c 071-84 064-85 Gentlemen : This refers to your letters dated September 7 and December 19, 1984 requesting a ruling as to whether the cash value of terminal leave credits and separation pay which will be received by the employees of the Foreign Trade Services Corporation whose services were terminated due to the reorganization of the Ministry of Trade and Industry are subject to the withholding tax. In reply thereto, I have the honor to inform you that pursuant to Section 29(c)(7)(F) of the Tax code, as amended, benefits received from the GSIS and the retirement gratuity received by government officials and employees are exempt from income tax. Moreover, pursuant to Section 29(c)(7)(B) of the Tax Code as amended, any amount received by an official or employee as a consequence of separation from the service of the employer for any cause beyond the control of said official or employee is exempt from income tax. The phrase "for any cause beyond the control of the said official or employee" connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be asked for or initiated by him. The separation must not be of his own making. (Sec. 2(b)(2), Revenue Regulations No. 6-82) The phasing out or laying off of the officials and employees as a result of the re-organization fall within the purview of said phrase. Such being the case, the separation pay received from the Foreign Trade Services Corporation by the employees whose services were terminated as a result of the reorganization of the Ministry of Trade and Industry is exempt from all taxes and consequently, from the withholding tax prescribed by Section 91, Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135. It is however, understood that this tax exemption does not include payments for salary and cash equivalent of terminal leave credits, i.e., accumulated vacation and sick leaves, if any, of the terminated employee. cdtech Very truly yours, (SGD.) TOMAS C. TOLEDO Acting Commissioner