SECTION 32 (B) EXCLUSIONS FROM GROSS

INCOME
(7)MISCELLANEOUS ITEMS.

(a) INCOME DERIVED BY FOREIGN GOVERNMENT.

Income derived from investments in the Philippines in:

1. loans,
2. stocks,
3. bonds or other domestic securities, or
4. from interest on deposits in banks in the Philippines by the
following are exempt also from income taxes:

(i) foreign governments,

(ii) financing institutions owned, controlled, or enjoying

refinancing from foreign governments, and

(iii) international or regional financial institutions established by

foreign governments.

(b) INCOME DERIVED BY THE GOVERNMENT OR ITS POLITICAL

SUBDIVISIONS.

Income derived from any public utility or from the exercise of any
essential governmental function accruing to the Government of the
Philippines or to any political subdivision thereof.

(c) PRIZES AND AWARDS.

Prizes and awards made primarily in recognition of:

1. religious,
2. charitable,
3. scientific,
4. educational,
5. artistic,
6. literary, or
7. civic achievement

are exclude from gross income BUT ONLY IF:

(i) The recipient was selected WITHOUT ANY ACTION on

his part to enter the contest or proceeding; and

(ii) The recipient is NOT REQUIRED TO RENDER

SUBSTANTIAL FUTURE SERVICES as a condition to receiving
the prize or award.

ILLUSTRATION:
The book authored by Mr. Reyes was chosen and awarded as the best
seller for the year 2016 without his knowledge. He was just surprised
when he received an invitation from the sponsoring non-government
organization to attend the awarding ceremony and to receive a plaque
and a cash prize of Php 100,000.00.

Is the cash prize taxable?

NO. Mr. Reyes was awarded without any action on his part to join the
contest. Moreover, there is no showing that he is required to render
substantial future services in connection with the award that he
received from the sponsoring organization.

(d) PRIZES AND AWARDS IN SPORTS COMPETITION.

ALL PRIZES AND AWARDS granted to athletes in local and

international sports competitions and tournaments whether held in
the Philippines or abroad and sanctioned by their national sports
associations are NOT SUBJECT TO INCOME TAX.

ILLUSTRATION:

Manny, an amateur boxer represented the Philippines in a world

boxing competition. He was declared as the champion and received the
following:

Php 100,000.00 cash prize from the sponsoring association

Php 500,000.00 cash gift given by Rubberglobe Philippines
Php 400,000.00 talent fee as model of Mikee Shoes & Shirts
Php 1,000,000.00 royalty paid by a film producer for portraying his
life

Are the above items taxable or not?

The cash prize and the cash given by Rubberglobes Philippines

amounting to Php 500,000.00 are not taxable because they were
received by Manny as prizes in connection with the boxing
competition.

The talent fee and royalty income are subject to income tax.

(e) 13TH MONTH PAY AND OTHER BENEFITS.

Gross benefits received by officials and employees of public and

private entities: Provided, however, That the total exclusion under this
subparagraph SHALL NOT EXCEED THIRTY THOUSAND PESOS
(P30,000) which shall cover:

(i) Benefits received by officials and employees of the national

and local government pursuant to Republic Act No. 6686;
 (ii) Benefits received by employees pursuant to Presidential
Decree No. 851, as amended by Memorandum Order No.
28, dated August 13, 1986;

(iii) Benefits received by officials and employees not covered

by Presidential decree No. 851, as amended by
Memorandum Order No. 28, dated August 13, 1986; and

(iv) Other benefits such as productivity incentives and

Christmas bonus: Provided, further, That the ceiling of Thirty
thousand pesos (P30,000) may be increased through rules and
regulations issued by the Secretary of Finance, upon
recommendation of the Commissioner, after considering among
others, the effect on the same of the inflation rate at the end of
the taxable year.

Following compensation income is exempt from tax:

a. 13th month pay is mandatory 1 month basic salary of the officials or

employees of the government (whether local or national), including
government-owned or controlled corporation and/or private offices,
received after the 12th month pay;

b. Other benefits:
a. Christmas bonus,
b. Productivity incentive benefits,
c. Loyalty awards,
d. Gifts in cash or in kind, and
e. Other benefits similar in nature

Actually received by officials and employees of both government

and private officers.

ILLUSTRATION:

Cathy, single, accounting clerk of San Jose Corporation, a domestic

corporation, received the following compensation from her
employer during the month:

Salary Php 20,000.00

13th month pay Php 20,000.00
Productivity pay Php 5,000.00
Loyalty award Php 3,500.00
Representation allowance (subject to liquidation) Php 4,500.00
Clothing Allowance Php 5,000.00
Monthly rice subsidy Php 1,700.00
Monetized unused vacation leave credits (10days) Php 8,000.00

Compute:

Salary (Php 20,000.00 x 12 mos.) Php 240,000.00

Add: Taxable benefits

13th month pay Php 20,000.00
 Productivity pay 5,000.00
Loyalty award 3,500.00
Clothing allowance (5,000-4,000) 1,000.00
Rice subsidy (1,700-1,500) x 12 2,400.00
TOTAL Php 31,900.00
Less: Exempt benefits 30,000.00

Php 1,900.00

GROSS COMPENSATION INCOME PHP 241,900.00

(f) GSIS, SSS, MEDICARE AND OTHER CONTRIBUTIONS.

GSIS, SSS, Medicare and Pag-ibig contributions, and union dues of

individuals.

(g) GAINS FROM THE SALE OF BONDS, DEBENTURES OR OTHER

CERTIFICATE OF INDEBTEDNESS.

Gains realized from the same or exchange or retirement of bonds,

debentures or other certificate of indebtedness with a maturity of more
than five (5) years.

(h) GAINS FROM REDEMPTION OF SHARES IN MUTUAL FUND.

Gains realized by the investor upon redemption of shares of stock in a

mutual fund company are exempt from tax (as defined in Section 22
(BB) of this Code.)