Separation Pay - Tax Exempt

July 6, 1993 BIR RULING NO. 292-93 SEPARATION PAY TAX EXEMPT 28 (b) (7) (B) 37-93 92-93 Royal Undergarment Corp. of the Phils., Inc. 20 - 28 Royal Road Bo. A. Samson Balintawak, Quezon City Attention: Mr . Fernando G . Atanacio Head, Administrative Division This refers to your request for a ruling that the separation benefits to be paid to MRS. SALVACION S. DOMINGO, 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 to this Office show that your employee, Mrs. Salvacion S. Domingo, a sewing machine operator in your company since November 18, 1970 was certified by your company physician, Dr. Pilar A. Adrias, to have been suffering from Ischemic Heart Disease, FC II-B, since January 1992; that she is unable to assume her post as sewing machine operator because of her disability symptoms; that she is presently undergoing diagnostic work-up to assess her cardiovascular status; that she is presently on SSS disability leave since September, 1992. 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 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 Mrs. Salvacion S. Domingo 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 Mrs. Salvacion S. Domingo's salary. cdtech LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue