Educational Institution Claiming Exemption from the 20% Final Withholding Tax on Its Interest Income

June 27, 1988 BIR RULING NO. 262-88 24 173-88 262-88 Gentlemen : This refers to your letters dated March 17 and April 29, 1988 requesting clarification as to whether your educational institution clients are subject to the 20% withholding tax on their deposits under Section 24(e)(1) of the Tax Code, as amended by Executive Order No. 37. cdti In reply thereto, I have the honor to inform you that the exemption under paragraph 3, Section 4, Article XIV of the 1987 Constitution reading: "(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. . . ." refers to internal revenue taxes and customs duties, in appropriate cases, imposed by the national government on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes. This accordingly includes interest and/or yield on their deposit substitute instruments or interest on their savings and time deposits. However, they shall be subject to internal revenue taxes on income from trade or business or other activity the conduct of which is not related to the exercise or performance by such educational institution of its educational purpose or function. (Sec. 2 Dept. of Finance Order No. 137-87) Such being the case, an educational institution claiming exemption from the 20% final withholding tax on its interest income and/or yield on deposit substitute instruments and interest on its savings and time deposits must be able to submit to the depository bank a certification from this Office as to its qualification for tax exemption under Section 4(3), Article XIV of the 1987 Constitution as amplified by Department of Finance Order no. 137-87. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner