Exemption of the Separation Pay Benefits from Tax

December 6, 1990 BIR RULING NO. 228-90 28 (b) (7) (B) 212-89 228-90 S i r : This refers to your letter dated November 5, 1990 requesting exemption from withholding tax of the retirement benefits which you expect to receive from the Philippine Deposit Insurance Corporation (PDIC) by virtue of your retirement under the Separation Incentive Plan Phase II for reason of your ill health effective November 3, 1990 pursuant to Section 28 (b)(7)(B) of the Tax Code, as amended. cdtech 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 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 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. 6-83, as amended. It is, however, understood that this tax exemption does not include PDIC's payments for your salary and cash equivalent of your accumulated vacation and sick leaves, if any. cdta Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner