Separation Pay - Tax-Exempt

October 14, 1993 BIR RULING NO. 404-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 126-93 404-93 Mr. Rodeo Ibaez c/o Eli Lilly (Philippines) Inc. 18th Floor, Galleria Corporate Center Robinson's Galleria EDSA corner Ortigas Avenue, Quezon City This refers to your request for a ruling that the separation benefits to be paid to you by your employer, Eli Lilly (Philippines) Inc. 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 show that you were certified by your company's physician, Dr. Rodolfo E. Joson to be suffering from left postereolateral disc herniation, L5 to S1 with indentation upon the descending nerve root of S1; that said illness affects the performance of your duties and endangers your life if you continue on 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 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 shall not be included in the 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 that company 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 by B.P. Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. It is however, understood that the payment of your salary is subject to income tax. cdtech LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue