Separation Pay - Tax-Exempt

October 7, 1993 BIR RULING NO. 396-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 376-93 396-93 Mr. Danilo L. Santos 954 A Del Pan St. Tondo, Manila This refers to your request for a ruling that the separation benefits to be received by you from your employer, the SGS-Philtest and Control Services, Inc. by reason of health condition are exempt from all taxes pursuant to Section 28(b) (7) (B) of the Tax Code, as amended. aisadc Documents submitted disclosed that you were diagnosed by your physician, Dr. Rufino E. Chan, to be suffering from an end-stage renal disease secondary to chronic pyelonephritis and since February 19, 1993, up to the present, you are undergoing regular hemodialysis or renal transplantation at Chinese General Hospital to optimally manage your uremic symptoms and that said illness affects the performance of your duties and endangers your life if you continue working. 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 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, including terminal leave pay (sick leave and vacation leave credits) which you will receive from SGS-Philtest and Control Services, Inc. as a result of your separation from the service of said company due to 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. cdt It is however, understood that your salary is subject to income tax. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue