Mr. Efren I. Reyes

October 14, 2009 BIR RULING [SB-(044) 641-09] 32 (B) (6) (b); RR 2-98; SB-012-08 Mr. Efren I. Reyes c/o Isabela II Electric Cooperative, Inc. Alibagu, Ilagan, Isabela Sir : This refers to your letter dated July 13, 2009 requesting for a ruling that the separation benefits to be paid to you by reason of poor health condition are exempt from income tax and consequently, from withholding tax pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, as amended. It is represented that you are employed as a Lineman of the Isabela II Electric Cooperative, Inc.,stationed at its Roxas Branch Office; that you were diagnosed to have Congestive Heart Failure, Hypertensive Cardiovascular Disease and Coronary Artery Disease; that you were advised by the City Health Physician of Cauayan City, Isabela to rest and refrain from heavy work as this would cause undue stress, thus, aggravating your precarious medical condition; and that due to your medical condition you were separated from the service effective June 25, 2009. In reply, please be informed that pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, as amended, any amount received by an official or employee from the employer as a consequence of separation of such official or employee from the service of the employer because of 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 thus 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 which you will receive as a consequence of your separation from the service due to sickness, including your terminal leave pay (sick leave and vacation leave credits),are exempt from income tax and consequently from withholding tax prescribed under Section 79, Chapter XIII, Title II of the Tax Code of 1997, as amended. (BIR Ruling No. SB-012-2008 dated May 16, 2008) CacEIS It is, however, understood that the payment of your salary is not exempt from income tax and consequently from withholding tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service