Separation Benefits Received by an Official or Employee as a Consequence of Separation from the Service Because of Ill Health is Exempt from Taxation

December 26, 1991 BIR RULING NO. 275-91 28 (b) (7) (B) 177-91 275-91 Gentlemen : This refers to your letter dated October 14, 1991 requesting exemption from income tax of the separation benefits of your employee, Mr. Alfredo del Rosario, who was forced to resign from the service of your company because of ill health, pursuant to Section 28 (b) (7) (B) of the Tax Code, as amended, and as implemented by Revenue Memorandum Order No. 25-91. Documentary evidence submitted disclosed that Mr. del Rosario has undergone medical evaluation, observations and mental status examination by the National Center for Mental Health, Department of Health and was found to be suffering from a psychiatric disorder known as Schizophrenia, an illness which is characterized by hallucinations and delusions, impairment of vegetative functioning and deterioration in the level of occupational functioning and interpersonal relations; hence, recommended for permanent total disability and declared as unfit for work. 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 employees 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 Mr. Alfredo del Rosario will received from your company as a result of his separation from the service of company due to ill health 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. Very truly yours, (SGD.) JOSE U. ONG Commissioner