Exemption from All Taxation

December 21, 1979 BIR RULING NO. 133-79 Exemption from all taxation This refers to your letter dated August 2, 1979 requesting opinion on the scope of the tax exemption provision of Section 25(c) of Republic Act No. 580, as amended, otherwise known as the Home Financing Act, quoted as follows: "(c) Interest accumulated by lending institutions on mortgages insured under the provisions of this Act shall be exempt from all taxation." In reply, I have the honor to inform you that the above-quoted provision applies in the case of a mortgage entered into between borrowers and lending institutions, which mortgage is insured with the Home Financing Commission in accordance with Republic Act No. 580, as amended. In other words, under the above-quoted provisions, the interest derived by the lending institution on the mortgage is exempt from all taxation as long as the mortgage is exempt from all taxation as long as the mortgage is insured with the Home Financing Commission. The above tax exemption privilege of the lending institutions refers only to those taxes on the interest for which the said institutions are directly liable. This includes the income and percentage taxes due on the interest realized by the lending institution. If the lending institutions are banks and finance companies, the percentage taxes to which they are exempt are those imposed by Sections 260 and 261 of the Tax Code of 1977, as amended.