Separation Pay - Tax Exempt

November 19, 1993 BIR RULING NO. 449-93 SEPARATION PAY TAX EXEMPT 28 (b) (7) (B) 276-93 449-93 PNOC Shipping & Transport Corporation S & L Building, Roxas Boulevard Manila Attention: Mr . Lamberto C . Arenal Manager Human Resource Management Dept . This refers to your request for exemption from the withholding tax on the separation benefits to be paid to your employee, MR. LOLITO S. DAROY, JR. by reason of health condition pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. cdta Documents submitted show that he was certified by your physician, Dr. Rogelio T. Buena, to be suffering from Cerebro Vascular Accident (CVA) with hemorrhage, hemiplegia right-sided and verbal asphasia 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 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, it is the opinion of this Office as it hereby holds that any and all amounts including his terminal leave pay (sick leave and vacation leave credits) which he will receive as a result of his separation from the service due to the abovementioned health 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. No. 135 and implemented by Revenue Regulations No. 6-82, as amended. It is, however, understood that the salary paid by your company to Mr. Lolito S. Daroy, Jr. is subject to the aforesaid withholding tax. llcd LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue