OPTIONAL STANDARD DEDUCTION

The OSD is in lieu of the itemized deductions including NOLCO allowable under the NIRC and special
laws. Under the OSD, the allowable deduction of the taxpayer is simply presumed as a percentage of
gross sales or receipt for individuals and gross income for corporations. There is no need to support
every item of expense. The OSD, however, does not relieve the taxpayer of the responsibility to deduct
the withholding tax on certain income payments as required by the NIRC.

WHO CAN CLAIM OSD?

OSD is a proxy for itemized deductions. All taxpayers who are subject to tax on taxable income can claim
deductions.

WHO CANNOT CLAIM OSD?

1. Non-resident alien engaged in trade or business (NRA-ETB)
2. Taxpayers mandated to use itemized deductions

OPERATING INCOME NON-OPERATING INCOME

Primary income from the ordinary course of Fines, Interest Income, Gains from dealings in
business properties, casual active income, passive income
or those not connected to the primary or
secondary activities of the business

OSD BASE FOR AN INDIVIDUAL TAXPAYER

Sales/Revenues/Receipts/Fees P xxx,xxx
Less: Sales returns, allowances and discounts xx,xxx
Net sales/revenues/receipts/fees P xxx,xxx
Multiply by: OSD percentage 40%
Optional standard deduction P xxx,xxx

Other taxable income from operations not subject to final tax

Revenues or receipts arising from incidental or secondary activities of the business or profession are
added as part of sales/revenues/receipts/fees.

OSD BASE FOR A CORPORATE TAXPAYER

Net Sales/Revenues/Receipts/Fees P xxx,xxx

Less: Cost of sales or services xx,xxx
Gross income from operations P xxx,xxx
Add: Other taxable income, not subject to final tax xxx,xxx
Total gross income P xxx,xxx
Multiply by: OSD percentage 40%
Optional standard deduction P xxx,xxx