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Lecture 2: INCOME TAXATION – INDIVIDUAL

I. Pro-Forma Computation
1. For INDIVIDUALS whose gross income solely includes compensation, allowances and other
remunerations arising from the employer-employee relationship, passive income and capital gains not
subjected to final tax and CGT:
Compensation income
Add: Passive Income, not subjected to FT
Capital Gains, not subjected to CGT
Gross Income
Less: Deductions for:
PHHI
Personal Exemptions
Taxable Income

xx
xx
xx
xx
(xx)
(xx)
xx

2. For INDIVIDUALS with business or professional income:
Gross receipts/sales
Less: Cost of service/sales
Gross income from business or profession
Less: Deductions for:
Itemized Deductions or OSD
NCLCO, if there is any
NOLCO, if there is any
Net income from business or profession
Less: Deductions for:
PHHI
Personal Exemptions
Taxable Income

xx
(xx)
xx
(xx)
(xx)
(xx)
xx
(xx)
(xx)
xx

3. For INDIVIDUALS whose income includes both compensation, business income and passive incomes
and capital gains not subjected to final tax and CGT:
Gross receipts/sales
Less: Cost of service/sales
Gross income from business or profession
Add: Passive Income, not subjected to FT
Capital Gains, not subjected to CGT
Total Gross Income before compensation income
Less: Deductions for:
Itemized Deductions or OSD
NCLCO, if there is any
NOLCO, if there is any
Net Income from Business or Profession
Add: Compensation Income
Total Income
Less: Deductions for:
PHHI
Personal Exemptions
Taxable Income

xx
(xx)
xx
xx
xx
xx
(xx)
(xx)
(xx)
xx
xx
xx
(xx)
(xx)
xx

II. Classes of Individual Taxpayer and Their Situs
1. Resident Citizen (RC) – taxable globally (within and outside)
2. Non-resident Citizen (NRC) – taxable for incomes derived within the Philippines only
a. Who establishes to the satisfaction of the CIR the fact of their physical presence abroad with a definite
intention to reside therein;
b. Who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for
employment on a permanent basis;
c. Who stays outside the Philippines for more than 183 days
d. A citizen who has been previously considered as non-resident citizen and who arrives in the Philippines
shall likewise be treated as a nonresident citizen for the taxable year in which he arrives in the Philippines
with respect to his income derived from sources abroad until the date of his arrival in the Philippines.
e. Overseas Contract Workers (OCWs). They are Filipino citizens employed in foreign countries who are
physically present in a foreign country as a consequence of their employment thereat. To be considered
as an OCW or OFW, he or she must be duly registered as such with the Philippine Overseas
Employment Administration (POEA) with a valid Overseas Employment Certificate (OEC).

commissions. Non-resident Alien Engaged in Trade or Business (NRAETB) – taxable for incomes derived within the Philippines only. Night shift differential. Separation Pay. honoraria. lease of properties. emoluments. Passive Income General Rule: Passive income earned within the Philippines are taxable unless specifically exempted by law. iii. If a special taxpayer is a Filipino.000. either holding a managerial or supervisory position. A special taxpayer. subject to P82. or a rank-and-file. Exception: If the passive income is not subjected to final tax.Lecture 2: INCOME TAXATION – INDIVIDUAL 3. 051-81 and 052-81). 3. Components of Gross Income 1.Sale of goods and properties (real or personal) . Arise from selling goods or services.000 limit e. The term trade or business shall not include performance of services by the taxpayer as an employee. Petroleum contractor or subcontractor b. Any Filipino or Foreign individual employed. may include: . Regional Area Headquarter or Regional Operating Headquarter of a multinational company iii. Resident Alien (RA) – taxable for incomes derived within the Philippines only a. Overtime pay. Compensation Income All remunerations paid to the employee arising from an employer-employee relationship which include. III. De minimis and other fringe benefits not subjected to fringe benefit tax (given to rank-and-file). such is added to the gross income subject to normal tax. All other income shall be taxed according to pertinent provisions of NIRC.Sale of services (professional services. etc. and Hazard Pay received by persons other than an MWE. Fees. Salaries and wages b. Thus. specifically exempted by the law and the requirements to be exempted are met. 155. Non-resident Alien Not Engaged in Trade or Business (NRANETB) – taxable for incomes derived within the Philippines only 6. Business and/or Professional Income a. unless. Subject to Final Withholding Tax INDIVIDUALS . A nonresident alien individual who shall come in the Philippines and stay herein for an aggregate period of more than 180 days during any calendar year shall be deemed as doing business in the Philippines 5. a. a. ii. Situs of Compensation Income: place where the services are rendered regardless of the residence of payor (Sec. 4. Special Taxpayer – Taxed at their gross income at 15% when: a. f. However: i. b. Holiday pay. he may opt to be taxed at 15% final tax or using the tabular tax if his gross compensation income is at least P 975. shall be taxed at 15% of his total GROSS COMPENSATION INCOME. Offshore Banking Units (OBUs) ii. generally. Aliens are only taxed at 15%. Retirement pay. De Minimis and other Fringe Benefits (See discussions on Fringe Benefits) g. RR 02-40) 2. b. but not limited to: a. We generally consider as residents those whose length of assignments are indefinite or exceeding two (2) years (BIR Rulings Nos. Whether individual or corporate taxpayer. in any of the following: i. he cannot claim personal exemptions. Remember: Every income is generally taxable. Bonuses and allowances c. etc.) Note: Withholding taxes from professional incomes and other sale of services which are subject to CWT must be correctly withheld. d. and similar remunerations which do not meet the requirements.

PHIC and HDMF contributions and union dues. De Minimis not exceeding their statutory limits. Exemptions and Other Deductions 1. subject to the pertinent rules in property. Proceeds of life insurance paid to the heirs upon death of the insured or whoever the beneficiary is (also not subject to estate tax if the beneficiary is the third person irrevocably designated as heir. If the cause of separation is voluntary. b. prizes exceeding P10. 8. Royalty from patents and franchises. c. Separation pay paid to the employee for causes beyond the control of said employee (involuntary). The employee is at least 50 years old at the time of retirement. NRAETB can only claim basic personal exemption if there is a reciprocity between Philippine laws and the laws of his country where he resides. administrator or executor or if the designation to third persons is revocable). Exclusions from Gross Income 1. trade and accounts receivables and those which are earned outside the Philippines shall be included in the computation of gross income. b. bequests and devises (subject to transfer taxes) are not subject to income tax. If REAL property not used in business. 6. Christmas bonus and other bonuses and benefits (de minimis) not exceeding PhP 82.000. but income derived from the use of such gifts. c. or FMV. ii. 13th Month Pay. (See discussions on Dealings in Property. Retirement benefits under RA 7641 (private benefit plan). subject to capital gains tax of 6% of the selling price. such payment shall be taxable. Gains from sale of bonds. b. Prizes and awards in recognition of religious. which are not subject to CGT. RC. literary works and musical compositions. However. If shares of stocks not traded in the local stock exchange. ii. 2. 7. 10.5%. provided: a. Gifts. subject to 5-10% capital gains tax. are subject to normal tax (5-32%).000 regardless of the status. prizes not exceeding P10. and interest from loans. except non-resident foreign corporation Interest on currency bank deposits. 3. Personal exemptions are only given to individuals whether RC. Income derived by foreign government 5. The employee availed it for the first time d. and Hazard pay (HONsHa) earned by MWE (non-taxable). Such private benefit plan is approved by the BIR. productivity incentives. Dividend from domestic corporation: exempt.000. debentures or other certificates of indebtedness with a maturity of longer than five years.000. Holiday pay. NRC and RA may claim a basic personal exemption of PhP 50. . yield and other monetary benefit from deposit substitute. 8. and cash and property dividend from domestic corporation: 10% final tax Interest on FCD under the expanded FCDS: 7. Optional Standard Deduction 2.) Note: Only those self-employed taxpayers or those having business may claim the following: 1. yield and other monetary benefit from deposit substitute. but may be lower instead. whichever is the highest. literary or civic achievement as well as awards in authorized sports competitions. Itemized Deductions VI. Amounts received as a return of premiums paid. 6. trust and similar arrangement. Personal Exemptions a.5%. or Zonal Value. the BPE cannot exceed Php 50. scientific. intercorporate principle b. charitable. Income derived by the Philippine government or its political subdivisions.Lecture 2: INCOME TAXATION – INDIVIDUAL i. subject to estate tax if the beneficiary is the estate. Overtime pay. All other capital gains. Capital Gains Capital gains arising from the sale of capital assets (real or personal assets) are taxable as follows: a. 9. NRC. 4. educational. c. Interest on currency bank deposits. Interest on FCD under the expanded FCDS: 7. trust and similar arrangement within the Philippines. artistic. Night shift differential. Not Subject to Final Withholding Tax – those which are not subjected to final tax like those which are earned abroad. iii. bequests and devises are subject to income tax. Mandated contributions such as SSS. prizes exceeding P10. V.) IV. 4.000 and winnings regardless of the amount: 20% final tax. 7. The employee has rendered 10 years in the same company.000 and winnings regardless of the amount: 20% final tax Royalty from books. except non-residents (NRC and NRAs) CORPORATION i. GSIS. Deductions from Gross Income (See discussions on Deductions. RA and NRAETB (subject to reciprocity rule). Royalty from patents and franchises. iii.

2.400 per year. If the spouse or any of the qualified dependent should marry or become twenty-one years old during the year. Whether single. e. c. May compute for their taxes separately. Those who qualified under the substituted filing method (for purely compensation income earners). VIII. became twenty-one years old or became gainfully employed at the close of such taxable year. the taxpayer may also claim an additional exemption even if the child reaches above 21 years old when such child is incapable of self-support because of mental defect. RC. d. Philhealth. Resident Filipinos (RC) who are taxable globally may claim tax credit for taxes paid in foreign countries. that in the case of PHHI. Requirements: i. his estate may claim his corresponding exemptions (both personal and additional) as if he died at the end of such year. 3. 2.Tax Code) a. Provided.000. iii. and vi. separate returns may be filed. he may claim the corresponding exemption in full for such year. NRC and RA may claim an additional personal exemption of Php 25. head of the family or legally separated. a. is not submitted or filed with the BIR if the employee is qualified for substituted filing. 1-03]. Depending upon the taxpayer at least ½ plus 1 for his living. Individuals under the split-pay scheme (portion of the salary is paid outside the Philippines) is also not allowed to substituted filing method. The empolyee receives income only from one employer in the Philippines during the calendar year. It is when the employer’s annual return (BIR Form 1604 CF – Annual Information Return of Income Taxes Withheld on Compensation) may be considered as the substitute income tax return of employee in as much as the information provided in his income tax return (BIR Form 1700) would exactly the same information contained in the employer’s annual return. concurrently or successively at any time during the year are also disqualified from substituted filing method [RMC No. Unmarried and not gainfully employed b. married. or should become gainfully employed. illegitimate or legally adopted v. If the taxpayer should marry or should have additional dependents during the taxable year. Income Tax Return Filing and Payment of Income Tax General Rule: All taxpayers must file an income tax return. the amount to be credited shall be subject to limitations. Provided that. BIR Form 2316 is a statement signed by both teh employee and the employer and serves as the same purpose as if the BIR Form 1700 had been filed. [RMC No.Lecture 2: INCOME TAXATION – INDIVIDUAL d. Living with the taxpayer iii.000 basic personal exemption. 2. the employee’s spouse also complies with all the three stated conditions above. the estate may claim only to the extent of P 20. Rules on determining the status of the taxpayer who claim personal exemptions: 1. 51(D). The employer issues BIR Form 2316 (Oct 2002 ENCS) version to each employee. the taxpayer may still claim the exemption as if the spouse or dependent died or as if such dependent married. If the taxpayer should die during the taxable year. f. ii. Married Individuals (Sec. an individual taxpayer may also deduct from his gross income SSS. the taxpayer can claim only to the maximum amount of P 50. In case of married individuals. 01-03]. Legitimate. Computation of Income Tax Due 1. This. however. For incomes of the estates. Pag-IBIG and PHHI contributions. 01-03]. Additional Personal Exemptions a. however. NRAETB are expressly prohibited from using the substituted filing method [RMC No. VII. If impracticable to file a single return. Exceptions: 1. . c. iv. The amount of tax due from the employee at the end of year equals the amount tax withheld by the employer. 3. The employer files the annual information return (BIR Form 1604 CF). iv. 4. Not more than 21 years old ii.000 for every qualified dependent CHILD. but shall file a single return for a taxable year. The claim must be made in the year the tax is paid. but not exceeding four children. Premiums on Health and/or Hospitalization Insurance Aside from the allowable deductions and personal exemptions. the total family income shall not exceed PhP 250. The BIR will consolidate the filed returns for purposes of verification for the taxable year. The employee is a purely compensation income earner. b. PROVIDED that the child is: i. v. Individuals deriving income from two or more employees. b.000 per year and the total claimable amount shall not exceed PhP 2.

Conviction or acquittal does not bar the filing of civil suit for collection of taxes. BIR Form 2316 – Certificate of Compensation Payment/ Tax Withheld for Compensation Payment with or without Tax Withheld 2. BIR Form 1701. Tax Code) b. The return shall be filed with: a. Tax Code. Cashier’s or manager’s check  Penalties for failure to file the return. amending RR 6-2014 a. Cash payment if the amount does not exceed P 10. 51 (CX1). Their Community Tax Certificates (CTC) b.000 but not exceeding P 100.000 [Sec. Extensions are not allowed. for business or mixed earners  The fact than an individual’s name is signed to a filed return is a prima facie evidence for all purposes that the return was actually signed by him. Liable for surcharge amounting to 25% of the tax due to be paid. RR 5-2015 dated March 17. Violations of tax laws are generally punishable by a fine and/or imprisonment. individual taxpayers are given the option to use either: a. BIR Form 2307 – Certificate of Creditable Tax Withheld at Source  Disclosure of Supplemental Income 1.000. 2307 and other pieces of evidence for final taxes withheld as well as information on the other tax exempt income. and imprisonment of not less two (2) years. at an amount not exceeding P 50. An authorized agent bank (AAB). amounting to 25% of the tax due. Tax Code]  Tax Returns forms 1. or d. 255. Collection Agent. . Those whose sole income has been subjected to final withholding tax. and/or pay the tax on time: i. On or before the 15th day of April each year covering income for the preceding taxable year (Sec. Filing with the incorrect RDO renders the taxpayer liable for a penalty 3. or in case of filing a false or fraudulent return. Revenue District Officer. [Sec. 254.Lecture 2: INCOME TAXATION – INDIVIDUAL 3. Duly authorized Treasurer of the City or municipality 2. In any returns filed with the BIR. Bank Debit System c. for the income tax filing covering and starting with calendar year 2014. Criminal Liability a. but not more than four (4) years.  The due date for filing the return (with no extension allowed) a.  Attachments: 1. Surcharge. which depends on the act committed or omitted Example: The attempt to evade or defeat tax is punished. and/or failure to pay the tax.000 will be imposed for each return not filed electronically c. for purely compensation income earners 2. b. the disclosures required under the Supplemental Information portion of the said forms will be MANDATORY. c. upon conviction. BIR Form 1700. Driver’s License  Where to FILE? 1. Revenue Memorandum Circular (RMC) 9-2014 futher amends the forms under RMC 40-2011 and making the disclosure of supplemental income OPTIONAL on the part of the taxpayer for the calendar year 2013 tax filing. 50% in case of willful neglect to file a return. 2. c. BIR Form 2306 – Certificate of Final Income Tax Withheld 3. except in meritorious cases. Mandatory for taxpayers enumerated under RR 6-2014 to use eBIR forms and must be filed online through the eBIR Forms System b. b. Passport c. Compromise penalties for failure to file the return. as determined by the Commissioner of the Bureau of Internal Revenue (Sec. b. the taxpayers are advised to demand from their payors and properly document their BIR Form No. RMO 19-2007] ii. 2015. Tax Code)  The modes of settling income tax liability may be: a. Interest at 20% per annum. 53. Thus. by a fine of not less than P 30. However. Penalty of P1. Civil Liabilities a.000.

resident citizen.000 Deductions from compensation income: SSS contributions 3. assuming he will use the outright method reporting of the income on the improvement. On January 6. the FMV at that time was P 2.000 Prize won in a Supermarket raffle 10. ___________________________ 3. 2013 150.00 shares sold in the local stock exchange at P10/share with a cost of P3/share a.000 Midyear Bonus 40. A leased her lot as follows: Lessee X Agreed annual rental P 300.000. The income to be reported by the lessor in 2014 and 2015.000 Gains (Loss) from sale of Properties: Loss from agricultural land sold on October 21. Compute the taxable income. 2009.000 Prizes and awards received for the silver medal in the SEA games 25.600 Pag-IBIG contributions 1. d.000 Improvements introduced by the lessee. b. assuming he will spread his income on the improvement over the term of the lease.800 Union Dues 2.Lecture 2: INCOME TAXATION – INDIVIDUAL STRAIGHT PROBLEMS 1. B had 1000 common shares of XYZ. 2005. ____________________________ ____________________________ ____________________________ ____________________________ 2.000 Loss from the sale of household effects acquired last May 23. single had the following during the year: Gross compensation income P 480.200 Philhealth contributions 1. B received a 50% stock dividend in preferred shares. determine the gain or loss of B on the sale of (a) Common Shares and (b) Preferred Shares. ___________________ c.5M 475. Compute the income tax due for the taxable year: Compute the final taxes (excluding CGT). respectively.000 Prize won as Lucky Home Viewer of Eat Bulaga 20. Assuming the shares are ordinary assets. a domestic corporation.000 Security Deposit P 250. which shall bellong to the lessor upon Expiration of the lease contract or termination P 10. 2014 Rentals received by the lessor on the inception of the lease (3 years rent) P 900.000 Interest on foreign currency deposit (net of WT) 10.000 13th Month Pay 40.000 Other Income: Prizes and awards received as best athlete in the Palarong Pambansa 10. 2014 Term of lease 20 years From the above given information. Compute the capital gain taxes. answer the following: a.000 Christmas Cash Gift 10. 2015. A. the land was inherited from his mother on September 25.000 Gain from the sale of car bought on August 1.400 Premium Payments on Health insurance (P250/month) 3.000 Start of lease January 1.000 Shares of stocks: 1.000 Interest on bank deposit (net of WT) 16. 2015 57. Who shall bear the depreciation of:  The leased property? ___________________  The leasehold improvement? ___________________ . The FMV of the shares at that time of dividend were P 160 per common share and P80 per preferred share. c. The income to be reported by the lessor in 2014 and 2015.000 Estimated useful life of the improvements 25 years Date of Completion of Improvements July 1. ___________________ b. acquireed at P150 per share.000 shares sold directly to buyer sold at P25/share with a cost of P17/share 5. The common and preferred shares were later sold at P 150 and P 72 per share.

000 5. 000 House costing P500. determine the:  Income to be reported by the lessor on the improvement _____________________  Deductible expense of the lessee X _____________________ f.000.000 Gain from Sale of Capital Assets: a. determine the deductible loss of the lessor on the improvements. Suppose the lease was terminated thru the fault of the lessee at the start of the 19th year. Juan.000 P 300.000 per month Paid on February 1. During the year.000 Loss from Sale of Capital Assets: a. 000 List Price of Car subject to 5% discount.000 Status of the taxpayer Single Married Married w/ 1 QDC Compute the net taxable income of the taxpayer for the year: a. No. 000 with a current FMV of P 1.000 20. How much would be the deductible expense of the employer if Micah is a non-resident alien not engaged in trade or business? ________________________ TRUE OR FALSE: . 2012 _______________________ c. Using itemized deduction.000 Advertising expenses 3. 2014 _______________________ 2014 P 350. Assuming the same figure above. 89-000-4561 P 150.000 Charitable contribution to religious corp 100. Using optional standard deduction. if the salvage value is P 50.000 57. 000 FMV of land where the house given is situated. how much is the total gross monetary value of the fringe benefits given to her? ______________________ b. 2011 2012 2013 Ordinary Taxable Income P 200. Held for 7 months 3.000 Deductions claimed: Salaries of staff. 000 a.000 28. The deductible expense of the lessee X in  2014 ___________________  2015 ___________________ e.000 Bad debt (P2. 201 1.000 2. the taxable income is: b.000 b. 000. net P5. 500 actually written off) 4.000 10. how much would be the fringe benefit tax? ______________________ d. 2013 _______________________ d. 2012 (useful life. the taxable income is: ________________________ ________________________ 6.000 P 250.000 b. how much FBT would be withheld by the employer? ______________________ c. net of 5% w/tax 95. Held for 13 months 8.000 10. If Micah is a resident citizen. 500.000 60.000 20. Mr. Micah was promoted as the new Marketing Manager of Port-to-Port Shipping Company. net of 10% w/tax P 630. half of the price was paid by Micah P 1.000 Fire insurance premium on office equipment for One year paid on August 1.000 a. 5years) 120.000 Traveling expense (business trip 50% only) 100.000 100. 2012 240.000 50. ___________________ 4.000 Cost of office equipment purchased on April 1. 350. only the usufruct of which is furnished P 1. Held for 19 months 22. Held for 12 months 20. Suppose the improvements were destroyed by fire on January 1 of the 15th year of the lease. at P10.000 Married w/ 2 QDC 5. a resident citizen had the following data for the years 2011 to 2014. As promotional incentives. the employer gave the following to Micah: Check deposited on Micah’s account Acct. 2011 _______________________ b. 000 w/tax 250.000 Broker’s Commission.000 30. Masaya.Lecture 2: INCOME TAXATION – INDIVIDUAL d. net of 10% withholding tax 90. supporting his minor son has the following data for the year 2012: Gross professional income. If Micah is an employee with the same position above working in a Regional Operating Headquarter of a foreign corporation.500 Rent of office space for 2 yrs.000 Other Income.married.

and those properties other than those enumerated by the Tax Code are considered capital assets.000. which is the sum of down payment. living and family expenses of individual income taxpayers and the amount of which is determined irregardless of their status is called personal exemption. whether or not connected with his trade or business.000. 16. A foreign corporation with a branch office in the Philippines employed Mr. Gains and losses derived from sale or exchange of ordinary assets are included in the computation of taxable income. Real and personal properties held by the taxpayer other than for business or trade purposes. X. The monthly rental per unit is P20. After 5 years. Capital gain is the gain derived from the sale or exchange of capital assets which includes all real properties held by the taxpayer. X sold his 5 . basis is the latest inventory value. 14. Ordinary gain is the gain derived from the sale or exchange of ordinary assets. Then left abroad. 20. 7. is divided by selling price to determine whether the gain is not exceeding 25% limit for instalment reporting purposes. 8. 15. total collections received in the year of sale plus excess of mortgage assumed by the buyer over the cost of property sold. schedular tax rates. a British as its executive to supervise the company’s operation. Nadal bought a lot for P2.000. He stayed in the Philippines for 4 months in the year 2008. for purposes of determining the loss. 19.000 which he intended to be used as family home. whichever is higher. . This sale is subject to capital gains tax. the gain or loss from such sale may be reported on instalment method. Initial payments. Overtime and holiday pay are included in computing the minimum wage. which must be in the form of a tangible property other than cash or gift certificate. the basis is the value as it would be in the hands of donor or the last preceding owner by whom it was not acquired by gift. If the property was acquired by gift. with an annual monetary value not exceeding ten thousand under an established written plan which does not discriminate in favor of highly paid employees is an exempt de minimis. he abandoned his plan and sold it for P3. or other property of a kind which would properly be included in the inventory of the taxpayer such as land held for sale by a real estate developer. Employee achievement awards such as for length of service. The cost of educational assistance extended by an employer to the dependents of an employee shall be treated as taxable fringe benefits if the assistance was provided through a competitive scheme under the scholarship program of the company. Gains and losses derived from sale or exchange of capital assets are subject to capital gains tax of 6% based on selling price or fair market value. An alien individual whether resident or not of the Philippines is taxable only on income from within.000. 6. 3. Rice subsidy of one thousand five hundred pesos or one sack of 50 kg. If a Filipino occupies the said position. the basis shall be such fair market value. Ordinary Assets include stocks in trade of the taxpayer. 17. Mr. 9. except that if such basis is greater than the fair market value of the property at the time gift. 12. His salary in the Philippines from the said corporation will be taxed at 25%. 10. When deferred payment sale is of a capital asset which is not subjected to capital gains tax. 13. he will be taxed based on the 5-32%. rice per month amounting to not more than one thousand five hundred pesos is an exempt de minimis benefit. Mr. An exemption allowed to an individual income taxpayer who has qualified legitimate.000.Lecture 2: INCOME TAXATION – INDIVIDUAL 1. 18. This sale is subject to capital gains tax. 11. and/or recognized illegitimate or legally adopted children is called additional exemption. or safety achievement. 4. An exemption provided by law to take care of personal.door apartment for P10.000. If the property is included in the taxpayer’s inventory. subject to holding period in case of individuals. 2. and which are not included among the real properties considered as ordinary assets. 5.