Income Tax on

Individuals
Income Tax

▪ Income Tax is a tax on a person's income, emoluments, profits arising

from property, practice of profession, conduct of trade or business or
on the pertinent items of gross income specified in the Tax Code of
1997 (Tax Code), as amended, less the deductions and/or personal and
additional exemptions, if any, authorized for such types of income, by
the Tax Code, as amended, or other special laws.
▪ A person means an individual, a trust, estate or corporation. (Sec.
22[A] of the Tax Code)
Taxability of Individuals

(A) A citizen of the Philippines residing therein is taxable on all income

derived from sources within and without the Philippines;
(B) A nonresident citizen is taxable only on income derived from sources
within the Philippines;
(C) An individual citizen of the Philippines who is working and deriving
income from abroad as an overseas contract worker is taxable only on income
derived from sources within the Philippines:
Provided, That a seaman who is a citizen of the Philippines and who
receives compensation for services rendered abroad as a member of the
complement of a vessel engaged exclusively in international trade shall be
treated as an overseas contract worker;
(D) An alien individual, whether a resident or not of the Philippines, is taxable
only on income derived from sources within the Philippines;
 Sources of Income

Compensation Income all remuneration received for services performed by an

employee for his employer under an
employee-employer relationship.
(Section 2.78.1 (A) of RR No. 2-98)

It includes salaries, wages, emoluments and honoraria,

allowances, commissions (e.g., transportation,
representation, entertainment and the like); fees
including director's fees, if the director is, at the same
time, an employee of the employer/corporation;
taxable bonuses and fringe benefits except those which
are subject to the fringe benefits tax under Sec. 33 of
the NIRC; taxable pensions and retirement pay; and
other income of a similar nature.
 Sources of Income

▪ Business or Professional Income income earned by an individual from his sole proprietorship
business, from the practice of profession, or share in the income
of a general professional partnership subject to Income Tax and
Expanded Withholding Tax, whenever applicable.

a person the activities formally certified

by a professional body to a specific
profession by virtue of having
completed a required examination or It likewise includes a person who engages in some art or sport for
course of studies and/or practice, whose money, as a means of livelihood, rather than as a hobby, such as
competence can usually be measured athletes, artists, bookkeeping agents, and other recipients of
against an established set of standards, professional, promotional or talent fees.
such as CPAs, Lawyers, Doctors, etc.
 Sources of Income

▪ Income owned in common with if there is a disposal of an asset which is

the spouse. conjugally owned by the spouses, the
gain therefrom shall be divided equally
to both the husband and the wife. Same
is true with expenses incurred
Note that there are no other rules conjugally, which are deductible, and it
applicable to spouses with regards is not determinable who among the
income tax, since they compute for spouses actually incurred the same, they
their own income tax liabilities; shall share in such deduction equally.
however, spouses can opt to report
their income separately but in ONE
tax return, which provides for
separate columns and sections for
the spouse. In fact, it is encouraged
by the BIR that spouses file their
income together in one return.
Sources of Income
Passive Income
Specific rates of final withholding
tax are provided for certain passive
incomes, such as interest from
deposits, dividends, royalties, etc.
However, if they are not covered by
such rate, it will form part of the
taxpayer’s gross income subject to
income tax.
▪ income generated without any active
conduct. These are income generated
by assets which can be in the form of
real properties that return rental
income, shares of stock in a
corporation that earn dividends or
interest income received from
savings.
(Chamber of Real Estate and Builders
Associations, Inc. vs. the Hon.
Executive Secretary Alberto Romulo,
et. Al)
Sources of Income

are those arising from the sale of

Capital Gains capital assets which may be
subject to Capital Gains Tax, for
sale of real property and shares of
stock not traded in a local stock
exchange; or as part of gross
income subject to income tax for
all other types of capital assets
Income Tax

TRAIN AMENDMENT: Basic

Personal and Additional Exemptions
and Premiums on Health and/or
Hospitalization Insurance are no longer
available beginning Jan. 1, 2018
Income Tax

▪ Income Tax is a tax on a person's income, emoluments, profits arising

from property, practice of profession, conduct of trade or business or
on the pertinent items of gross income specified in the Tax Code of
1997 (Tax Code), as amended, less the deductions and/or personal and
additional exemptions, if any, authorized for such types of income, by
the Tax Code, as amended, or other special laws.
▪ A person means an individual, a trust, estate or corporation. (Sec.
22[A] of the Tax Code)
Basic Computation of Tax
Pure Business or Profession Income
availing of the Graduated Table
Pure Business or Profession Income
availing of the 8%
 Mixed Income Earners

Mixed Incomer Earners (from compensation and income from business or practice of
profession) can be taxable as follows:
a. COMPENSATION INCOME - is ALWAYS subject to the graduated rights.
b. INCOME FROM BUSINESS/PRACTICE OF PROFESSION:
If the taxpayer’s gross sales/receipts, together with other non-operating income, do not
exceed P3,000,000: either
a) 8% income tax rate without the first P250,000 exempt (since this will be considered in the
application of the graduated rates for income from compensation); or
b) Graduated rates
If the taxpayer’s gross sales/receipts, together with other non-operating income, exceeds
P3,000,000 – graduated rates.
1 Income Tax Rates
Income Tax Rates
 Income Tax Rates
2
 Graduated Rates
The above rates shall apply to:
a. Purely compensation income earners
b. Mixed income earners as regards their compensation income
c. Those earning income from business or practice of profession whose sales/receipts and other
income EXCEEDS P3,000,000
d. Those earning income from business or practice of profession whose sales/receipts and other
income DOES NOT exceed P3,000,000 and the taxpayer opted to avail of the graduated income
tax rates or opted to avail of optional VAT registration.
e. Those who failed to signify that they are availing the 8% flat rate in their 1st quarter income
tax return.
f. Those who are not allowed to avail the 8% flat rate of income tax.
Problem Solving

In the above illustration, Mx. X likewise earned

P1,000,000 from employment with XYZ Company for
which P180,000 was tax withheld and remitted to the
BIR. How much is her income tax due and payable?
a. How much is the taxable income?
b. How much is the tax due?
Problem Solving

▪ Ms. X operates a convenience store while she offers

bookkeeping services to her clients. In 2018, her
gross sales amounted to P800,000.00, in addition to
her receipts from bookkeeping services of
P300,000.00 and incurred costs and expenses of
P300,000 and P100,000, respectively. How much is
her tax due using the 8% tax rate?
Problem Solving

In the above illustration, what if Mr. X is a mixed

income earner?

a. How much is the income tax due?

Problem Solving

▪ In the above illustration, if Ms. X failed to signify her intention to be

subjected to the 8% income tax rate, she shall be subject to the
graduated tax and her income tax liability shall be computed as
follows:
Problem Solving

▪ Mr. ABC earned P3,000,000 on his practice of profession for the first
three quarters of 2018 for which he filed quarterly income tax returns
and availed of the 8% income tax rate, and on the fourth quarter, he
earned P3,500,000. For the taxable year, he incurred cost of sales and
operating expenses amounting to P3,000,000 and P1,440,000,
respectively. How much is his tax due and tax still payable for taxable
year 2018?
8% FLAT RATE
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