Separation Pay - Tax-Exempt

September 30, 1993 BIR RULING NO. 386-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 356-93 386-93 Mrs. Norma L. Atega Barangka, Marikina Metro Manila This refers to your request dated August 24, 1993 for exemption from the withholding tax on the separation benefits to be paid to you by your employer, the Capital Garment Corporation, by reason of health condition pursuant to Section 28(b) (7) (B) of the Tax Code, as amended. cdta Documents submitted show that you were certified by your company physician to be suffering from ischemic heart disease, uncontrolled hypertension and hyperthyroidism, and that, said illness warrants your permanent disability. Said finding is confirmed by the B.I.R. 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 employee or official or by his heirs from the employer as a consequence of separation of such employee or official from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of said employee or official 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 your terminal leave pay (sick leave and vacation leave credits) which you will receive as a result of your separation from the service of your employer, the Capital Garment Corporation, due to your aforesaid condition, are exempt from income tax and consequently, from the withholding tax prescribed by Section 72, Chapter 10, Title II of the Tax Code, as amended. Your salary is however, subject to income tax. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue