Exemption of Retirement Benefits from Withholding Tax

July 13, 1988 BIR RULING NO. 323-88 28 (b) (7) (B) 278-87 323-88 S i r : This refers to your letter dated July 7, 1988 requesting exemption from withholding tax on the retirement benefits which you received from Citibank N.A., Makati, Metro Manila. Documentary evidence submitted shows that upon the advice of a government physician, you were involuntarily separated from the service of the bank due to ill health. In reply, I have the honor to inform you 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 said official or employee is exempt from income tax. In review thereof, this office is of the opinion as it hereby holds that any and all amounts which you received from Citibank N.A., Philippine Branches Retirement Plan as a result of your separation from the service of the company due to sickness are exempt from all taxes and consequently, from withholding tax prescribed by Section 72, Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 12-86 amending Revenue Regulations No. 6-82. It is however, understood that this tax exemption does not include payments, of your salary and cash equivalent of your accumulated vacation and sick leaves, if any. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner