Separation Pay - Tax-Exempt

November 18, 1993 BIR RULING NO. 446-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 424-93 446-93 Mr. Roberto Castillo Philippine Airlines Manila This refers to your request for a ruling that the separation benefits to be paid to you by 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. prll Documents submitted show that you were certified by your attending physician, Dr. Godofredo M. Banzon to be suffering from S/P Tuberculosis Meningitis and Amnestic Syndrome; that Dr. Erwin C. Orteza, Chief, Medical and Dental Division, BIR, confirmed the same and that considering the pressure of your work, it is likely that your condition may worsen should you be allowed to continue working. 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 PAL as a result of your separation from the service of said company due to your 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 your salary is subject to income tax. cdta LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue