Separation Pay - Tax-Exempt

November 9, 1993 BIR RULING NO. 428-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 376-93 428-93 Manila Electric Company Ortigas Avenue, Pasig Metro Manila Attention: A . B . Factura Asst . Vice-President Legal Services Dept . This refers to your request for a ruling that the separation benefits to be paid to MR. MARIANO P. MANGULABNAN by reason of health condition are exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. prcd Documents submitted disclosed that your employee, Mr. Mariano P. Mangulabnan was certified by your company physician, Dr. George M. Matti, to be suffering from Hypertension and hypertriglyceridemia and that said illness affects the performance of his duties and endangers his life if he continues 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 Mr. Mariano P. Mangulabnan will receive from you as a result of his separation from the service of your company due to his aforesaid health condition are 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. It is however, understood that Mr. Mariano P. Mangulabnan's salary is subject to income tax. cdpr LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue