Tax Exemption of the Separation Benefits Paid to Employee Separated from Service by Reason of Health Condition

May 4, 1992 BIR RULING NO. 138-92 28 (b) (7) (B) 053-92 138-92 Mr. Edgar L. Bedural No. 36 J. Felipe Street, Chrysanthemum Village, San Pedro, Laguna S i r : This refers to your request for a ruling whether your separation benefits to be paid by Ciba-Geigy Philippines by reason of health condition are exempt from all taxes pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended. Documents submitted show that you were involved in a vehicular accident; and that you are suffering from a skull fracture that caused brain laceration, some hemorrhage and generalized brain contusion involving the right frontal lobe, that will permanently have a propensity for post-traumatic seizures and some behavioral and memory defects as certified by your Attending Physician, Dr. Ramon S. Suter; and that said illness affects the performance of your duties and endangers your life if you 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 her 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 of the opinion as it hereby holds that any and all amounts which you will receive from your employer as a result of your separation from the service of your company due to your aforesaid health condition 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. 6-82, as amended. It is however, understood that this exemption does not include the payment of your salary. Very truly yours, EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge