Any and All Amounts Received by an Employee as a Result of His Separation from the Service of Employer Due to Sickness are Exempt from Income Tax

June 14, 1991 BIR RULING NO. 101-91 28 (b) (7) (B) 194-90 101-91 M a d a m : This refers to your letter dated February 25, 1991 requesting exemption from income tax and consequently from withholding tax on the benefits which you expect to receive from the Philippine Deposit Insurance Corporation (PDIC) as a consequence of your retirement by reason of ill health effective December 31, 1990. Documents submitted show that you were certified by your attending physician, Dr. Romeo A. Divinagracia and Dr. Romeo V. Gavino, Bank Executive Officer II, Central Bank of the Philippines, to be a patient since 1976 for a case of: (1) Essential hypertension and (2) Bronchial Asthma; and that because of said illness you were advised by your said physician to retire from your work. In reply, please be informed that pursuant to Section 28 (b) (7) (A) 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 the opinion as it hereby holds that any and all amounts which you received from PDIC as a result of your separation from the service of PDIC due to sickness 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. 8-82, as amended. It is however, understood that this exemption does not include PDIC's payment for your salary and cash equivalent of your accumulated vacation and sick leaves, if any. aisadc Very truly yours, (SGD.) JOSE U. ONG Commissioner