Separation Pay - Tax-Exempt

April 23, 1993 BIR RULING NO. 137-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 015-93 137-93 Royal Undergarment Corp. of the Phils., Inc. 20-28 Royal Road Bo. A. Samson Balintawak, Quezon City Attention: Ms . Eleanor A . Martin Asst . Personnel Manager This refers to your request for a ruling that the separation benefits to be paid to MS. CONSOLACION G. ATOLE by reason of health condition are exempt from all taxes pursuant to Sec. 28 (b) (7) (B) of the Tax Code, as amended. aisadc Documents submitted to this Office show that your employee, MS. CONSOLACION G. ATOLE, a sewing machine operator in your company since July 6, 1976, was certified by your Company Physician, Dr. Pilar A. Adrias, to have been suffering from Herniated Nucleus Pulposus 15-S1, as diagnosed through CTScan examination on the Spine last March, 1992 but which condition started in 1991; that she has been unable to work since December 1991 to the present and since then had underwent physical therapy at the Philippine Orthopedic Center but affording only temporary relief; that surgery was recommended to her but she is still undecided; that said illness affects the performance of her duties and endangers her life if she continue working. Said finding is confirmed by the BIR Medical Officer. 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 his employer as a consequence of separation of such official or employee from the service of his 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, including terminal leave pay (sick leave and vacation leave credits) which Ms. Consolacion G. Atole will receive from you as a result of her separation from the service of your company due to her aforesaid health condition is exempt from income tax and consequently, from withholding tax as prescribed under 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 payment of Ms. Consolacion G. Atole's salary. cd VICTOR A. DEOFERIO, JR. Commissioner of Internal Revenue