Withholding Tax Exemption on Retirement Benefits Received from NHMFC

March 12, 1987 BIR RULING NO. 072-87 29 (b) 7 (F) 140-85 072-87 S i r : This refers to your letter dated February 3, 1987 requesting a ruling as to whether or not the retirement benefits which you and your co-employees will receive from the National Home Mortgage Finance Corporation (NHMFC) are subject to withholding tax. It is represented that you are 64 years old with a total government service of 38 years; that you are qualified to retire under C.A. No. 186, as amended by R.A. Nos. 660, 1616 and P.D. No. 1146, and that among the benefits which you will receive upon retirement are as follows: 1. One (1) month salary for every year of service to be paid by NHMFC; 2. Commutation of vacation and sick leave, to be paid by NHMFC; 3. Incentive separation pay of one-half () of basic monthly plus P300.00 for every year of service to be paid by NHMFC; 4. Refund of retirement contributions to be paid by G.S.I.S.; and 5. Refund of Provident Fund Contributions. In reply, I have the honor to inform you that Section 29(b)(7)(F) of the Tax Code, as amended, provides that benefits from the G.S.I.S. and the retirement gratuity received by government officials and employees are exempt from income tax. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts which you will receive from the NHMFC as retirement gratuity (items 1 & 3) and from the G.S.I.S. (item 4) as a result of your retirement from the service of NHMFC are exempt from all taxes and consequently, from the withholding tax prescribed by Section 82, Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86. Moreover, the refund of your personal contributions to and from the NHMFC Provident Fund is not likewise subject to tax. Accordingly, any and all amounts to be received by you from the NHMFC Provident Fund upon retirement, over and above your said personal contributions shall be subject to income tax pursuant to Section 54(b) of the Tax Code as amended. It is however, understood that your tax exemption does not include payments for your salary and cash equivalent of your accumulated vacation and sick leaves, if any. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner