Chapter 8

Regular Income Tax Exclusions from Gross Income

Exclusions from Gross Income -income from such property as well
-income which will not be subject to income tax as gift, bequest, devise, or descent
-they are not included in gross income subject to of income from any property
regular tax, capital gains tax, final tax -in cases of transfers of dividends
interest
Under Sec. 32 (B) of the NIRC, the ff:
shall not be included in gross income and shall be Gifts Distinguish from Exchange
exempt from taxation: -transferor’s motive gift
exchange
1. Proceeds Of Life Insurance Policy
How do proceeds of life insurance policy Gift
excluded from gross income? -characterized by pure liberality on
-paid to the heirs or beneficiaries disinterested generosity
upon the death of the insured, -given w/o any consideration
whether in a single sum or Exchange
otherwise -always involves a consideration
When do the interest payment does shall be
included in gross income? Employment Gratuities
-if such amounts are held by the How do employment gratuities subject
insurer under an agreement to pay to income tax?
interest thereon -gratuities given under an
employer-employee
Is life regarded as a capital item with infinite relationship
value?
-yes, hence the proceeds of life
-normally treated in
insurance is a return of capital
exchange for services
rendered by the employee
2. Amount Received By The Insured
As A Return Of Premium How do employment gratuities subject
How do amount received by the insured as a to fringe benefit tax?
return of premium excluded from gross -transfer of properties by the
income? employer to managerial or
-paid by him under life insurance supervisory employees
endowment, or annuity contracts,
These are the de minimis benefit
subject to income tax.
-either-
-Christmas/ major
anniversary gifts granted by
-during the term;
the employer to employees
-at the maturity of the term
mentioned in the contract;
-upon surrender of the contract 4. Compensation For Injuries Or
Sickness
Property Insurance Contracts How does compensation for injuries or
How do property insurance contracts taxable sickness excluded from gross income?
return on capital?
-amount received through
-when the proceeds of property
insurance contracts -accident
-health insurance
-in excess of the tax basis of the -under Workmen’s
property lost Compensation Acts as
destroyed compensation for personal
injuries/sickness
3. Gift, Bequest, Devise, Descent +
How do gift, bequest, devise, and descent -amount of any damages
excluded from gross income? received whether
-through the value of property
acquired by gift, bequest, devise, or by suit agreement
descent -on account of such
injuries/sickness

How do gift, bequest, devise and descent 5. Income Exempt Under Treaty
included in gross income?
 Chapter 8
Regular Income Tax Exclusions from Gross Income
How do income exempt under treaty excluded
from income tax? B. Retirement Benefit Under RA. 7641
-income items -received by the

-that are excluded by international

agreement to which the Philippine *officials *employees
government is a signatory
-in the absence of a retirement plan
6. Retirement Benefits, Pensions, Requisites of Exemption:
Gratuities a. The retiring employee is at least
A. Retirement Benefit under RA. 7641 60 years of age
-those received by the
b. He must have served the
employer for at least 5 years
*officials *employees
-of private firms -apply also in cases where the
retirement plans not approved by
-in accordance the BIR

-with reasonable private C. Separation or Termination

benefit plan Requisites of Exemption:
a. The separation or termination must be
-maintained by the employer due to

Requisites of exemptions: (Mnemonic 1- Job-threatening sickness

10-50-RPBP Death
a. This is the first time availment of Other physical disability
retirement benefit exemption.
b. The same must be due to any cause
b. The retiring official/ employee have beyond the control of the employee
been in the services of the same of official such as:
employer for at least ten (10) years. i. Redundancy
c. The retiring employee is at least ii. Retrenchment
fifty (50) years of age at the time of iii. Closure of employer’s
retirement. business
iv. Employee lay-off
d. The employer maintains a
v. Downsizing of employer’s
reasonable private benefit plan.
business
Reasonable Benefit Plan vi. Sickness or death of the
-a pension, gratuity, stock employee
bonus/profit sharing plan
Beyond the Control of the
maintained by an employer
Employee
for the benefit of some/ all of -involuntariness on the part
his officials/employee of the employee
How to be exempt of the retirement -separation must not be of
plan? his own making
-the retirement plan must be a
What constitute the BIR Ruling 054-
trusteed plan
2001?
Abandonment of office such
-where the fund is held under the
as registration
management of a trustee free from
subsequent
both employer and employee
appointment to
control
another office
What is Cumulative Years of Employment?
-10-year service period requirement considered voluntary
with the same employer separation and does
not fall within the
purview of the phrase

-for any cause beyond the

control of such official or
employee
 Chapter 8
Regular Income Tax Exclusions from Gross Income
Exemption of termination/separation does not i. Foreign governments
extend to: ii. Financing institutions owned,
a. BIR Ruling 003-2004 controlled, or enjoying refinancing
-backwages or illegal deductions repaid from foreign government
by the employer upon termination iii. International or regional financial
b. BIR Ruling NO. 199-2011 institutions established by foreign
-terminal leave pay or the commutation governments
of accumulated unused leave credits
-exempt under the exemption
How to avail the tax exemption? doctrine of international comity
First
b. Income of the government and its
-the employee/ his heirs shall political subdivisions
request for ruling/certificate of (income derived by the government
exemption (CTE) from the BIR and its political subdivision) from:
i. Any public utility
Second ii. Exercise of essential government
-the request for CTE and other function
required documents shall be filed at
Government agencies and
the RDO where the employee is instrumentalities is exemption
registered because?
-their public service nature
D. Social Security Benefits, Retirement
When taxation does apply in
Gratuities, and Other Similar Benefits
Government agencies and
from Foreign Government Agencies
instrumentalities?
and Other Institutions, Private or Public
-when they engage in
-received by
income-producing activities
which are proprietary/
*resident *non-resident citizen/aliens
commercial in nature
-who come to settle permanently in the COGS (Government-owned and
Philippines controlled corporations)
-not exempted
E. United States Veterans Administration
(USVA) –administration benefits -generally taxable as regular
-under the laws of the US corporations because their
operations are proprietary in
received nature

by any person c. Prizes and awards in recognition of

religious, charitable, scientific,
residing in the Philippines educational, artistic, literary, or civic
achievements, but only if
F. Social Security Systems (SSS) benefits i. the recipient
-RA 8282
-was selected
G. GSIS benefits
-under RA 8291 -without any action on his part to
enter the contest or proceeding;
-including retirement gratuity received ii. the recipient
by government officials and employees
-is not required to render substantial
7. Miscellaneous items future services as the condition to
a. Income in the Philippines of foreign receiving the prize or award
government or foreign government
owned and controlled corporations
(income derived on investments in the
Philippines in loans, stocks, bonds, or
other domestic securities, or from
interest on deposits in the banks in the
Philippines) by:
 Chapter 8
Regular Income Tax Exclusions from Gross Income
Prizes subject to Taxable Income: OFW –allowed to contribute up to 200K
-if the recipient per year to a PERA Account
Non-OFWs – allowed to contribute 100k
-exerted effort for the grant of the
per year
prize such as joining a contest or is
required to render service for its Husband & Wife – each can contribute
grant up to the maximum allowable
contribution
-the prize is construed as received in PERA contributors are allowed to claim 5%
an exchange
of their PERA contributions as tax credit
Examples of Exempt Prizes: against any internal revenue taxes
a. Nobel Prize Award
b. Gawad ng Sining Award g. PERA Investment income and PERA
c. CNN Hero of the Year distributions
d. Most Outstanding Citizen -PERA account assets

d. Prizes and awards in athletic sports -will be distributed back to the

competitions contributor either in lump sum, life
(prizes and awards in sports pension or in installment upon reaching
competitions granted to athletes:) the age of 55
a. In local or international
competitions and tournaments Beneficiaries upon his/her death PERA
b. Whether held in the distributions are likewise exclusions in
Philippines/abroad gross income of the contributor
c. Sanctioned by their national sports
associations His heirs or beneficiaries as the case
may be
e. Contributions to GSIS, SSS, Philhealth,
Pag-IBIG and union dues h. 13th month pay and other benefits not
(Contributions to GSIS, SSS, Philhealth, exceeding 90,000
Pag-IBIG and union dues of individuals)
-pertain to the employee share in the i. Gains from sale of bonds, debentures,
premium contributions or certificate of indebtedness maturity
How it is exempt from income tax? of more maturity of more than 5 yrs.
-the portion of the salary thus -grounded upon the same assumption
contributed
-that long-term indebtedness is diverted
RMD No. 21-2011 to the financing of long-term projects
-the exclusion pertains only to the
mandatory/compulsory monthly -which is viewed as beneficial to the
contributions development of the country
Voluntary contributions
-Pag-Ibig II j. Gains from redemption of shares in
-GSIS mutual fund
-SSS (Gains realized from redemption of
-in excess of the mandatory shares in mutual fund company by
monthly contribution are investor)
taxable
Mutual Fund Company
f. Contributions to Personal Equity -open-end and close-end investment
Retirement Account (PERA) company as defined under the
-PERA is contributor’s voluntary Investment Company Act
retirement account
Mutual funds pool the money invested
-established from qualified by different investors
contributions of the contributor and/ his and
employer for the sole purpose of being Invest the money to earn investment
invested in qualified PERA investment income
products =
Add up to the net assets of the fund
 Chapter 8
Regular Income Tax Exclusions from Gross Income
A net participating investor must
purchase participation shares from the
fund at their Net Asset Value (NAV)
Upon redemption of his participation
shares, the investor gains or losses by
his proportionate share in the increase
or decrease in the Net Asset Value of
the Fund
k. Income derived from the sale of gold
pursuant to RA7076 or the People’s
Small-Scale Mining Act of 1991
How to avail exemption on the sale of
gold, SSMs and gold traders?
-must be registered with the BSP
SSMs will have to fulfill?
1. Various stringent mining
standards of the Mines and
Geoscience Bureau (MGB)
2. The Department of Environment
and Natural Resources (DENR)
aside from securing local permits
and clearances
Registered SSMs
-refer to Filipino citizens who have
organized themselves as an
individual miner or cooperative duly
licensed by the Mines and
Geosciences Bureau (MGB)
-to engage in the extraction
of minerals or ore-bearing
materials from the ground
under the terms of a small-
scale mining contract
Accredited Traders
-persons/entities engaged in the
business of buying and selling gold
that have complied with the BSP’s
gold trader accreditation procedures
Black Market
-gold hoarders, traders or buyers
other than BSP and accredited gold
traders
Small –Scale Mining Contract
-co-production, joint venture, or
mineral production sharing
agreement between the
government and a small-scale
mining contractor for the small-scale
utilization of a plot of mineral inside
a Small-Scale Mining Area or
Minahang Bayan
Other Exempt Income under the NIRC and
Special laws
1. Minimum wage and certain benefits of
Minimum wage earners
2. COVID-19 benefits under Bayanihan to Heal
as One Act
3. Limited retirement benefit exemption
under RA 11494
4. Income of Barangay Micro-Business
Enterprise Act (RA 9178)
5. Income of cooperatives (RA 9520)
6. Income of non-stock, non-profit entities
7. Income of qualified employee trust funds
8. Business or professional income of self-
employed and or professionals who opted
to the 8% income tax
1. Minimum Wage Earners
-an individual recipient of a minimum wage
as fixed by the:
-Regional Tripartite Productivity
Wage;
-Productivity Board of the
Department of Labor and
Employment
-exempt from income tax on the minimum
wage including:
a. Holiday pay
b. Overtime pay
c. Night Shift differential pay
d. Hazard pay
2. COVID-19 Benefits
-RA 11494
-exempt special benefits for health workers:
a. COVID-19 Special Risk Allowance
-allowance paid to both private and
public health workers directly
catering to or in contact with COVID-
19 patients for every month that
they are serving during the state of
national emergency due to COVID-
19 as declared by the President
b. Actual hazard duty pay
-compensation given to temporary
Human Resource for Health (HRH)
serving in the front line during the
state of emergency due to COVID-19
c. Compensation to health workers
who contracted COVID-19 in the
line of duty
-private and public health workers
who have contacted COVID-19 in the
line of duty shall be given:
i. 1M in case of death
ii. 100K in case of severe or
critical sickness
 Chapter 8
Regular Income Tax Exclusions from Gross Income
iii. 15K in case of
mild/moderate sickness

3. Limited Retirement Benefit

Exemption During Pandemic
-Under RA 11494
-retirement benefits received by
officials and employees of private
firms, whether individual or
corporate

-from June 5, 2020 to December 31,

2020

-shall be exempt from income tax

provided that the amount received
is in accordance with the retirement
plan duty registered with the BIR

-and that the retiring employee

must not be re-employed in the
same firm and its related parties
within the succeeding 12 months
from retirement