Separation Pay - Tax-Exempt

November 11, 1993 BIR RULING NO. 430-93 SEPARATION PAY TAX-EXEMPT 29 (b) (7) (B) 356-93 430-93 Mr. Danilo G. Mangahas c/o Republic Cement Corporation Retelco Drive cor. E. Rodriguez Ave. Pasig, Metro Manila This refers to your request for exemption from the withholding tax on the separation benefits to be paid to you by your employer, Republic Cement Corporation, by reason of health condition pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. Documents submitted show that you were certified by the Medical Supervisor of Republic Cement Corporation, Dr. Atilano A. Palomares, to be suffering from a serious illness which is progressive retinopathy bilateral secondary to diabetes mellitus and that physical examination shows blindness of your left eye and weakness on the left side of your body; and that said illness affects the performance of your duties and endangers your life if you continue working. Said findings are 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 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 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 your terminal leave pay (sick leave and vacation leave credits) which you will receive as a result of your separation from the service due to the abovementioned 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 to you by your employer, Republic Cement Corporation, is subject to income tax and consequently to the withholding tax. cdta LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue