Separation Pay -Tax-Exempt

October 14, 1993 BIR RULING NO. 405-93 SEPARATION PAY -TAX-EXEMPT 28 (b) (7) (B) 276-93 405-93 Ms. Milagros D. Cartagena c/o Philippine Airlines Manila This refers to your request for a ruling that the separation benefits to be paid to you by your employer, the Philippine Airlines, by reason of health condition are exempt from all taxes pursuant to Section 28 (b)(7)(B) of the Tax Code as amended. cdt Documents submitted show that you were certified by your physician, Dr. Teresita G. Borja to be suffering from Hemiplegia Secondary to Cerebral Hemorrhage 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 employee or official 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 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 Philippine Airlines 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 salary paid by PAL to you shall be subject to income tax. LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue