Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 13:
Computation of Gross Taxable
Income and Tax Due

AIRs - LM
LU_FABM 2_Module 13
 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
Module 13: Computation of Gross Taxable Income and Tax Due
Second Edition, 2021

Copyright © 2021
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form without written
permission from the copyright owners.

Development Team of the Module

Author: Oliver N. Ancheta,

Editor: SDO La Union, Learning Resource Quality Assurance Team
Content Reviewer: Rudyna Minasalvas
Language Reviewer: Liza N. Antolin
Illustrator: Ernesto F. Ramos, Jr.
Design and Lay-out: Hermogenes T. Diaz

Management Team:

Atty. Donato D. Balderas, Jr.

Schools Division Superintendent
Vivian Luz S. Pagatpatan, Ph.D
Assistant Schools Division Superintendent
German E. Flora, Ph.D, CID Chief
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Printed in the Philippines by: _________________________

Department of Education – SDO La Union

Office Address: Flores St. Catbangen, San Fernando City, La Union
Telefax: 072 – 205 – 0046
Email Address: launion@deped.gov.ph

LU_FABM 2_Module 13
 Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 13:
Computation of Gross Taxable
Income and Tax Due

LU_FABM 2_Module 13
 Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear learners,
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If you have any questions in using this SLM or any difficulty in answering the
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Thank you.

LU_FABM 2_Module 13
 Target

In your previous lesson, you have learned about income and business taxation
and its principles and processes.
In this module, you will be provided with information and activities that will
help you understand taxable income and tax due of individual taxpayers, both citizen
and resident alien, only.
After going through this module, you are expected to learn the following
objectives:

Learning Competency:

1. Explain the procedure in the computation of gross taxable income and tax due
(ABM_FABM12- IIh-j-17)

Subtask:

1. Define Exclusions from Gross income.

2. Enumerate exclusions from gross income and allowable deductions.
3. Identify the deductions from gross income.
4. Explain the procedure in the computation of gross taxable income and tax
due.

Before going on, check how much you know about this topic.
Answer the pretest in a separate sheet of paper.

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Pretest:
Direction: Read carefully each item. Write only letter of the best answer for each test
item. Use capital letter only.

TAXABLE INCOME AND TAX DUE

NIRC Tax Code SEC. 31. Taxable Income Defined. -The term ‘taxable income
means the pertinent items of gross income specified in NIRC Tax Code, less the
deductions, if any, authorized for such types of income by this Code or other special
laws. In formula:

Taxable Income = Gross Income – Deductions

To compute for the tax due, the rate of tax based from RA 10963 Section 5
(Section 24 of NIRC Tax Code) shall be applied. The amount computed using the
table below is actually called “income tax”. Since it is the income tax due to be paid
in the current taxable quarter or year, it is called tax due.

RANGE OF TAXABLE INCOME BASIC ADDITIONAL OF EXCESS

AMOUNT RATE OVER
OVER NOT OVER
(a) (b) (c)

- 250,000 - -

250,000 400,000 - 20% ₱250,000

400,000 800,000 30,000 25% ₱400,000
2,000,000 2,000,000 130,000 30% ₱800,000
2,000,000 8,000,000 490,000 32% ₱2,000,000
8,000,000 2,410,000 35% ₱8,000,000
Table 1: Tax Schedule Effective January 1, 2018 until December 31, 2022:
Source: “Tax Code,” Bureau of Internal Revenue, last accessed August 23, 2021,
https://www.bir.gov.ph/index.php/tax-code.html

The schedule shows that if the taxable income is zero (0) but not over two
hundred fifty thousand pesos (250,000), the basic amount of tax is zero (0) and the
additional rate of tax of the excess over the taxable income is also zero, which means
that annual taxable income below P250,000 are exempt from paying personal income
tax. The excess from the range of exemption (0-250,000) is taxable (See example
below).

Example:
Mr. Mythical Glory receives annual taxable income of P260,000.
Solution:
Applying the rates, we have;

P260,000 – 250,000 = P10,000

P10,000 X 20% = 2,000 (Tax Due)

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1. What term defined by NIRC Tax Code, under Sec. 31, which means the
pertinent items of gross income less the deductions, if any, authorized for
such type of income?

A. Gross Income B. Net Income C. Taxable Income D. Tax Due

2. Which item is NOT included in the “Exclusions from gross income” for the
computation of taxable income which are treated as deductions?
A. Union dues.
B. De minimis benefits
C. 13th month pay in excess of Php90,000 threshold.
D. Employee’s share in the SSS, GSIS, PHIC, and contributions

3. Statement no 1: The husband and wife shall compute separately their

individual income tax based on their respective total taxable income.
Statement no 2: That if any income of the husband and the wife cannot be
definitely attributed to or identified as income exclusively earned or realized
by either of the spouse, the same shall be added to the husband.

A. Both statements are true. B. Both statements are false.

C. Only statement 1 is true. D. Only statement 2 is true.

4. Individuals earning income purely from self-employment and or practice of

profession whose gross sales does not exceed the VAT threshold shall have the
option to avail of:
Statement 1: Graduated rates under Section 24(A)(2)(a);
Statement 2: Twelve percent (12%) tax on gross sales

A. Both statements are true. B. Both statements are false.

C. Only statement 1 is true. D. Only statement 2 is true.

5. A taxpayer whose gross sales does not exceed the VAT Threshold:
Statement I: Financial Statement (FS) is required to be attached in filing the
final income tax.

Statement II: Financial Statement (FS) is not required to be attached in filing

the final income tax.

A. Both statements are true. B. Both statements are false.

C. Only statement 1 is true. D. Only statement 2 is true.

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In question 6-10 read the scenario given below. Answer the questions that follows.

Mr. BSO, is an employee of GOLD Inc. He is not engaged in business nor has
any other source of income other than his employment. For 2019, Mr. CSO earned a
total compensation income of Php 156,000.00 inclusive of his contribution to SSS
6,480, PhilHealth 3,960, and HDMF amount to Php1,200.00 and 13th month pay of
Php12,000.00. Mr. CSO earned, aside from his basic wage, additional pay of
Php140,000.00.

6. What is the gross income of Mr. BSO?

A. Php.140,000 B. Php.156,000 C. Php.296,000 D. Php.308,00
7. What is the total mandatory contribution?
A. Php. 6,480 B. Php.11,640 C. Php.35,640 D. Php.175,640

8. What is the gross income net of mandatory contribution?

A. Php. 133,520 B. Php. 284,360 C. Php. 296,000 D. Php.308,000
9. What is the taxable income?
A. Php144,360 B. Php272,360 C. Php.284,360 D. Php296,000

10. What is the tax due?

A. Php. 0.00 B. Php. 4,472. C. Php.6,872 D. Php. 9,200

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 Jumpstart

For you to understand the lesson well, do the following

activities.
Have fun and good luck
Activity 1: EPIC Company

Direction. Read carefully the given scenario. Compute for the following in a separate
sheet of paper:

1. Gross Income (Total compensation income)

2. Taxable income
3. Tax Due
Scenario 1:

Ms. Layla is employed in EPIC Corporation and is also a part-time real estate
agent of a real estate broker. In 2019, last year, she received the following:

Annual Salary…………………………………….. Php300,000

13th month pay……………………………………. 25,000
Mandatory contributions:
SSS…………………………. Php9,600
PAG-IBIG…………………... 1,200
PhilHealth…………………. 5,250 16,050 (total)

In addition to the Php300,000 she received from her employer, she likewise
received Php65,000 as commissions from her real estate dealings for the year 2019.

Use this format:

Computation:

Total Compensation Income (salary + commission) Php___________

Add: 13th Month Pay and other benefits ___________
Gross Income ___________
Less: Mandatory contributions
SSS Php__________
PAG-IBIG __________
PHILHEALTH __________ __________
Gross Income net of statutory contributions __________
Less: 13TH month pay (non-taxable benefit) __________
Net taxable income Php__________
Tax due: _______________________ Php__________

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 Discover

I. . Definition of exclusions from gross income.

Section 32 (A) of the NIRC enumerates the items that are part of
gross income, called “INCLUSIONS”, hence taxable. Section 32 (B)
specifically identified the sources of income which are exempted by the tax
code called, “EXCLUSIONS”. Exclusions from gross income are actually
income which form part of the gross income but not taxable, hence,
deducted from gross income to determine the taxable income only.
Incidentally, Allowable deductions enumerated in Section 34 of the NIRC
are also deductions from gross income, unlike exclusions from gross
income, these deductions are expenses in nature.
II. Exclusions from Gross Income. - The following items shall not be included in
gross income and shall be exempt from taxation. (refer to NIRC Section 32 (B) for
a detailed explanation.

(1) Life Insurance. -

(2) Amount Received by Insured as Return of Premium. -

(3) Gifts, Bequests, and Devises. -

(4) Compensation for Injuries or Sickness. -

(5) Income Exempt under Treaty. -

(6) Retirement Benefits, Pensions, Gratuities, etc.-

(7) Miscellaneous Items. –

(a) Income Derived by Foreign Government. -

(b) Income Derived by the Government or its Political Subdivisions. -

(c) Prizes and Awards. -

(d) Prizes and Awards in sports Competition. -

(e) 13th Month Pay and Other Benefits. -

(f) GSIS, SSS, Medicare and Other Contributions. -

(g) Gains from the Sale of Bonds, Debentures or other Certificate of

Indebtedness.

(h) Gains from Redemption of Shares in Mutual Fund.

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 These are the allowable deductions enumerated in Chapter 7 Section 34 of the
NIRC which are actually the operating expenses presented in the statement of
comprehensive income.
A. Expenses
B. Interest
C. Taxes
D. Losses
E. Bad Debts
F. Depreciation
G. Depletion of Oil and Gas Wells and Mines
H. Charitable and Other Contributions
I. Research and Development
J. Pension Trusts
K. Additional Requirements for Deductibility of Certain Payment
L. Optional Standard Deduction (OSD)
Source: “Tax Code,” Bureau of Internal Revenue, last accessed August 23, 2021,
https://www.bir.gov.ph/index.php/tax-code.html

III. Identify the deductions from gross income.

Consider the following scenario:

Ms. Trish is employed in COD company. In 2020, last year, she received the
following:

Annual Salary…………………………………….. Php360,000

13th month pay……………………………………. 30,000
Mandatory Contributions
SSS…………………………. Php10,800
Pag-IBIG…………………... 1,200
PhilHealth…………………. 8,100 20,100 (total)

In addition to the Php360,000 she received from her employer, she likewise
received Php60,000 as commissions from selling RTWs.

• The 13th month pay of 30, 000 received by Ms. Trish is an exclusion from gross
income under miscellaneous items. It is therefore a deduction from gross
income, “Include” for the purpose of computing the gross income, but “exclude”
to arrive at the taxable income.
• The mandatory contributions are also exclusions from gross income under
miscellaneous items, namely; SSS, Pag-IBIG and PhilHealth in the amount of
10,800, 1,200, and 8,100 respectively.

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IV. Explain the procedure in the computation of gross taxable income
and tax due.

A. Individuals Earning Purely Compensation Income

• Taxed based on the graduated income tax rates prescribed.

• Taxable income is the gross compensation income less non-taxable
income/benefits such as but not limited to:

1. 13th month pay and other benefits (subject to limitations)

❖ That the total exclusion shall not exceed Ninety thousand pesos
(Php90,000)
2. de minimis benefits
3. employee’s share in the SSS, GSIS, PHIC, Pag-IBIG contributions
4. union dues.

Example:

Miss Ash, is an employee of PUBG Inc. She is not engaged in business nor
has any other source of income other than her employment. For 2019, Ms. Ash
earned a total compensation income of Php285,000.00. Her mandatory
contributions composed of SSS, PhilHealth and PAG-IBIG are Php10,800,
Php9,975 and Php1,200 respectively for a total amount of Php21,975 and has
received 13th month pay of Php23,750.00.

Computation:

Total Compensation Income Php. 285,000.00

Add; 13th Month Pay 23,750.00
Gross Income 308,750.00
Less: Mandatory contributions Php21,975.00
Non-taxable benefits (13th month pay) 23,750.00 45,725.00
Net taxable income Php. 263,025.00

Tax due: (263,025-250,000) X 20% Php. 2,605.00

B. For married individuals

The husband and wife, subject to the provision of Section 51 (D) hereof,
shall compute separately their individual income tax based on their respective
total taxable income: Provided, that if any income cannot be definitely attributed
to or identified as income exclusively earned or realized by either of the spouses,
the same shall be divided equally between the spouses for the purpose of
determining their respective taxable income.

Source: “Tax Code,” Bureau of Internal Revenue, last accessed August 23, 2021,
https://www.bir.gov.ph/index.php/tax-code.html

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Example:
Mr. Bruno is a married individual employed in Mythical Glory
Company. His wife Layla is also employed in the same company. Their
corresponding income and deductions are listed below. What is their taxable
income and tax due? Can they file a joint income tax return?

Mr. Bruno Mrs. Layla

Monthly Salary Php42,000 Php27,000

SSS 900 900

Pag-IBIG 100 100

PhilHealth 735 472.50

Christmas Bonus 42,000 27,000

Car won in a raffle draw Php800,000

Computation of Taxable income and Tax due.

Mr. Bruno Mrs. Layla

Annual Salary Php504,000 Php324,000

Christmas Bonus 42,000 27,000

Share in Winnings 400,000 400,000

Total Gross Income Php946,000 Php751,000

Less: Mandatory contributions

SSS (10,800) (10800)

PAGIBIG (1,200) (1,200)

PHIL HEALTH (8,820) (5,670)

Gross Income (Net of Mandatory Contribution) Php925,180 Php734,530

Less: Christmas Bonus 42,000 27,000

Taxable Income Php883,180 Php707,530

Amount allowed as deduction under Sec. 250,000 250,000

24(A)(2)

Net Taxable Income Php.633,180 Php457,530

Mr. Bruno 30,000 + (233,180 X 25%) Php. 88,295

Mrs. Layla 30,000 + (57,530 X 25%) Php 44,382

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 ❖ The Car worth Php800,000 won in a raffle draw should be divided equally
between the spouses since it could not be identified as income exclusively
earned or realized by either of the spouses.

C. Minimum Wage Earner

Provided, that minimum wage earners (MWE) as defined in Section 22(HH)

of this Code shall be exempt from the payment of income tax on their taxable income:
Provided, further, That the holiday pay, overtime pay, night shift differential pay and
hazard pay received by such minimum wage earners shall likewise be exempt from
income tax.
Source: “Tax Code,” Bureau of Internal Revenue, last accessed August 23, 2021,
https://www.bir.gov.ph/index.php/tax-code.html

Example:
Mr. CSO, a minimum wage earner, works for C.O.D. Inc. He is not engaged in
business nor has any other source of income other than his employment. For
2018, Mr. CSO earned a total compensation income of P 135,000.00. His
mandatory contribution to SSS 518, PhilHealth 197, and HDMF 100, are 518,
197 100 respectively for a total amount to Php9,780.00 and has received 13th
month pay of Php11,250.00. The following year, Mr. CSO earned, aside from his
basic wage, additional pay of Php140,000.00 which consists of the overtime pay-
Php80,000.00, night shift differential- Php30,000'00, hazard pay-Php15.000.00.
and holiday pay- Phpl5,000.00.

Total Compensation Income Php135,000.00

Add; Overtime. night shift differential,
hazard, and holiday pay 140,000.00
Total Income Php275,000.00
Less: Mandatory contributions Php9,780.00
Non-taxable benefits 11,250.00 21,030.00
Net taxable income Php113,970.00
Tax due: EXEMPT

❖ An employee receiving a Statutory Minimum Wage (SMW) is considered as

Minimum Wage Earner. Thus, exempt from income tax. Holiday pay, overtime
pay, night shift differential pay and hazard pay are likewise exempt from
income tax.
Source: “Revenue Regulations No. 8-2018,” Bureau of Internal Revenue, last accessed August
23, 2021, https://www.bir.gov.ph/images/bir_files/internal_communications_1/

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 D. Self-employed and/ or Professional (RA 10963. Section 5. Section
24 of the NIRC, as amended)
Individuals earning income purely from self-employment and/or practice
of profession whose gross sales or receipts and other non-operating income does
not exceed the value-added tax (VAT) threshold as provided under Section 109
(BB) of the Tax Code, as amended, shall have the option to avail of:
1. The graduated rates under Section 24(A)(2)(a) of the Tax Code, as
amended; OR
2. An eight percent (8%) tax on gross sales or receipts and other nonoperating
income in excess of two hundred fifty thousand pesos (Php250,000.00).

Source: “Tax Code,” Bureau of Internal Revenue, last accessed August 23, 2021,
https://www.bir.gov.ph/index.php/tax-code.html

Illustration 1; Ms. BBQ operates a convenience store while she offers bookkeeping
services to her clients. In 2018, her gross sales amounted to Php800,000.00, in
addition to her receipts from bookkeeping services of Php300,000.00. She already
signified her intention to be taxed at 8% income tax rate in her 1st quarter return.

Her income tax liability for the year will be computed as follows:

Gross Sales - Convenience Store Php 800,000

Gross Receipts – Bookkeeping 300,000
Total Sales/Receipts Php1,100,000
Less: Amount allowed as deduction under Sec. 24(A)(2)(b) 250,000
Taxable Income Php 850,000
Tax Due:
8% of Php 850,000 Php 68,000

❖ The total of gross sales and gross receipts is below the VAT threshold of
Php3,000,000.00,
❖ Taxpayer's source of income is purely from self-employment, thus she is
entitled to the amount allowed as deduction of Php250,000.00 under Sec.
24(A)2)(b) of the Tax Code, as amended.

❖ Income tax imposed herein is based on the total of gross sales and gross
receipts.
❖ Income tax payment is in lieu of the graduated income tax rates under
subsection (A) hereof and percentage tax due, by express provision of law.

E. Individuals Earning Income both from compensation and from self-

employment (business or practice of profession)
For mixed income earners, the income tax rates applicable are:

1. The compensation income shall be subject to the tax rates prescribed under
Section 24(A)(2)(a) of the Tax Code, as amended; and

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2. The income from business or practice of profession shall be subject to the
following:
a. If the gross sales/receipts and other non-operating income do not exceed the
VAT threshold, the individual has the option to be taxed at:
a.1 Graduated income tax rates prescribed under Section 24(A)(2)(a)
of the Tax Code, as amended; OR

a.2 Eight percent (8%) income tax rate based on gross sales/receipts
and other non-operating income.

The provision under Section 24(A)(2)(a) of the Tax Code, as amended, which
allows an option of 8% income tax rate on gross sales/receipts and other non-
operating income in excess of Php250,000 is available only to purely self-employed
individuals and/or professionals. The Php250,000.00 mentioned is not applicable to
mixed income earners since it is already incorporated in the first tier of the graduated
income tax rates applicable to compensation income. Under the said graduated rates,
the excess of the Php250,000.00 over the actual taxable compensation income is not
deductible against the taxable income from business/practice of profession under
the 8% income tax rate option.

The total tax due shall be the sum of:

(1) tax due from compensation, computed using the graduated income tax
rates;

(2) tax due from self-employment/practice of profession, resulting from the

multiplication of the 8% income tax rate with the total of the gross sales/receipts
and other non-operating income.

Mixed income earner who opted to be taxed under the graduated income tax
rates for income from business/practice of profession' shall combine the taxable
income from both compensation and business/practice of profession in computing
for the total taxable income and consequently, the income tax due
Source: “Tax Code,” Bureau of Internal Revenue, last accessed August 23, 2021,
https://www.bir.gov.ph/index.php/tax-code.html

Example:
Mr. MAG, a financial comptroller of JAB Company, earned annual
compensation in 2018 of Phpl,500,000.00, inclusive of 13th month and other
benefits in the amount of Php120,000.00 but net of mandatory contributions to SSS,
PhilHealth and PAG-IBIG. Aside from employment income, he owns a convenience
store, with gross sales of P2,400,000. His cost of sales and operating expenses are
Php1,000,000.00 and Php600,000,00, respectively, and with non-operating income
of Php100,000.00.

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I. His tax due for 2018 shall be computed as follows if he opted (he chose) to
be taxed at eight percent (8%) income tax rate on his gross sales for his income
from business:
Total compensation income Php 1,500,000
Less: Non-taxable 13th month pay and other benefits (maximum) 90,000
Taxable Compensation Income Php l,410,000
Tax due:
1. On Compensation:
On P800,000. Php 130,000
On excess (Php1,410,000-Php800,000) x 30% 183,000
Tax due on Compensation Income Php 313,000

2. On Business Income:
Gross Sales Php 2,400,000
Add: Non-operating Income 100,000
Taxable Business Income Php 2,500,000
Multiplied by income tax rate 8%
Tax Due on Business Income Php 200,000
Total Income Tax Due (Compensation and Business) Php 513,000

❖ The option of 8% income tax rate is applicable only to taxpayer's income from
business. and the same is in lieu of the income tax under the graduated income
tax rates and the percentage tax under Section 1 16 of the Tax Code, as amended.

❖ The amount of Php250,000.00 allowed as deduction under the law for taxpayers
earning solely from self-employment/practice of profession' is not applicable for
mixed income earner under the 8o% income tax rate option.

❖ The Php250,000.00 mentioned above is already incorporated in the first tier of

the graduated income tax rates applicable to compensation income.

II. His tax due for 2018 shall be computed as follows if he did not opt
(did not choose) for the eight percent (8%) income tax based on gross
sales/receipts and other non- operating income.
A. The tax payer choose the itemized deduction as provided by Section 11 of RA
10963 (Train Law).
Total compensation income Php 1,500,000
Less.: Non-taxable 13th month Pay and other benefits-max 90,000
Taxable Compensation Income Php 1,410,000
Add: Taxable Income from Business –
Gross Sales Php 2,400,000
Less: Cost of Sales 1,000,000
Gross Income Php 1,400,000
Less: Operating Expenses 600,000
Net Income from Operation Php 800,000 900,000
Total Taxable Income Php 2,310,000

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Tax Due:
On P 2000,000 490,000
On excess (P 2,310,000 – 2,000,000) x 32% 92,200
Total Income Tax Php 589,200

❖ The taxable income from both compensation and business shall be combined for
purposes of computing the income tax due if the taxpayer chose to be subject
under the graduated income tax rates.
❖ In addition to the income tax, Mr. MAG is likewise liable to pay percentage tax of
Php72,000.00, which is 3% of Php2,400,000.

B. The Tax payer choose the Optional Standard Deduction (OSD) as provided by
Section 11 of RA 10963 (Train Law) which states, “In lieu of the deductions
allowed under the preceding Subsections, an individual subject to tax under
Section 24, other than a nonresident alien, may elect a standard deduction in an
amount not exceeding forty percent (40%) of his gross sales or gross receipts, as
the case may be.”
Total compensation income Php 1,500,000
Less.: Non-taxable 13th month Pay and other benefits-max 90,000
Taxable Compensation Income Php 1,410,000
Add: Taxable Income from Business –
Gross Sales Php 2,400,000
Less: 40% of Gross Sales (OSD) 960,000 Php 1,440,000

Total Taxable Income Php 2,850,000

Tax Due
On Php 2,000,000 490,000
On excess (Php 2,850,000 – 2,000,000) x 32% 272,200
Total Income Tax Php 762,200

❖ Notice the big difference of tax due if the taxpayer chose the Optional Standard
Deduction in lieu of the itemized deductions.
❖ The 40% OSD is computed directly to gross sales and operating expense of
Php600,000 is disregarded.
❖ If the taxpayer select the OSD, it shall be irrevocable for the taxable year for
which the return is made: Provided, That an individual who is entitled to and
claimed for the optional standard deduction shall not be required to submit
with his tax return such financial statements otherwise required under this
Code.
Source: “Revenue Regulations No. 8-2018,” Bureau of Internal Revenue, last
accessed August 23,2021,
https://www.bir.gov.ph/images/bir_files/internal_communications_1/
Full

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 Explore

Here are some enrichment activities for you to work on to master and
strengthen the basic concepts you have learned from this lesson.

Enrichment “Mixed Income Earner”

Direction: Read the problem of a taxpayer earning income both from compensation
and from self-employment.

Mr. MAG, a Financial comptroller of JAB Company, earned annual

compensation in 2018 of Php,500,000.00, inclusive of 13th month and other
benefits in the amount of Php.90,000.00 but net of mandatory contributions to SSS
and PhilHealth. Aside from employment income, he owns a convenience store, with
gross sales of P2,400,000. His cost of sales and operating expenses are
Php.400,000.00 and Php.100,000,00, respectively, and with non-operating income
of Php.90,000.00.

Activity I: The Taxpayer chose the eight percent (8%) income tax rate. Use the format
below

Total compensation income Php ________

Less: Non-taxable benefits ________
Taxable Compensation Income ________
Tax Due:
On Compensation:
On Php400,000 ________
On excess______________________________ Php ________
On Business Income:
Gross Sales Php ________
Add: Non-operating Income ________
Taxable Business Income ________
Multiply by income tax rate
Tax Due on Business Income ________
Total Income Tax Due (Compensation and Business) Php ________

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LU_FABM 2_Module 13
Activity 2: The taxpayer did opt to be taxed at 8% (chose the graduated income tax.)
Use the format below.

Total compensation income Php__________

Less.: Non-taxable 13th month Pay and other benefits _______
Taxable Compensation Income Php__________
Add: Taxable Income from Business –
Gross Sales Php__________
Less: Cost of Sales __________
Gross Income Php___________
Less: Operating Expenses ________
Net Income from Operation Php ________ _______
Total Taxable Income Php__________

Tax Due:
On Php800,000 _______
On excess (Php__________ – Php____________) x 30% ______
Total Income Tax Php___________

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LU_FABM 2_Module 13
 Deepen

Direction: Read and analyze the tax problem given below. Gather your knowledge
about the “VAT Threshold” and the limitation of the 13 th month pay.
Apply what you have learned in the given activity. Enjoy!

Activity 1:
Mr. WBV, an officer of AMBS International Corp., earned in 2018 an annual
compensation of Php1,200,000.00, inclusive of 13th month and other benefits in the
amount of Php120,000.00. Aside from employment income, he owns a farm, with
gross sales of Php3,500,000. His cost of sales and operating expenses are
Php1,000,000.00 and Php600,000.00, respectively, and with non-operating income
of Php100.000.00.

Q1. Compute the taxable income.

Q2. Compute the tax due.

Use this table:
Total compensation income Php ________
`Less: Non-taxable benefits ________
Taxable Compensation Income ________

Tax Due:
On Compensation:
On Php__________ ________
On excess______________________________ Php ________
On Business Income:
Gross Sales Php ________
Add: Non-operating Income ________
Taxable Business Income ________
Multiply by income tax rate
Tax Due on Business Income ________

Total Income Tax Due (Compensation and Business) Php ________

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LU_FABM 2_Module 13
Rubric for Individual Work (Problem Solving)

0 1 2 3 4
CRITERI No Emergent Developing Capable Strong
A Response
Off topic
Response No Limited Basic Complete
does not unders- understand- understand- understanding of
UNDERS- fit the tanding ding of the ding of the the problem –
TANDING given of the problem- problem- Identifies all
problem/ problem Identifies a Identifies all elements of
task few elements elements of problem and
of the problem problem and gives correct
and may give gives correct answer
incorrect answer
answer
Computa- Computation Computation All computation
Did not tion is is generally is generally is complete and
COMPU- identify incorrect incorrect correct and correct
TATION the and/or complete but
correct incomplete may contain
values minor flaws
Totally Disorganized Organized Organized
incorrect thinking with thinking thinking using
ORGANI- No attempt unclear or using at least multiple
ZATION Attempt to non-existent one representations
represent representation representa-
thinking tion
Totally Unclear or Understan- Thorough and
incorrect incomplete dable concise
EXPLA- Unable to written/ written/verbal written/ written/verbal
NATION be read verbal explanation verbal explanation
explana- explanation
tion
No Inappropriate At least one At least one
evidence strategy is appropriate appropriate
STRATE- No of shown or strategy is strategy is
GIES Attempt strategies explained shown or completely
shown explained shown or
with possible explained.
minor flaws

18

LU_ FABM 2_Module 13

 Gauge

Congratulations! You’ve gone this far. Now let us try your progress. Good luck!!!

Posttest:
Direction: Read carefully each item. Write only letter of the best answer for each test
item. Use capital letter only.

1. What term defined by NIRC Tax Code, under Sec. 31, which means the
pertinent items of gross income less the deductions, if any, authorized for
such type of income?
A. Gross Income B. Net Income C. Taxable Income D. Tax Due

2. Which item is NOT included in the “Exclusions from gross income” for the
computation of taxable income which are treated as deductions?
A. Union dues.
B. De minimis benefits
C. 13th month pay in excess of Php90,000 threshold.
D. Employee’s share in the SSS, GSIS, PHIC, and contributions

3. Statement no 1: The husband and wife shall compute separately their

individual income tax based on their respective total taxable income.
Statement no 2: That if any income of the husband and the wife cannot be
definitely attributed to or identified as income exclusively earned or realized
by either of the spouse, the same shall be added to the husband.

A. Both statements are true. B. Both statements are false.

C. Only statement 1 is true. D. Only statement 2 is true.

4. Individuals earning income purely from self-employment and or practice of

profession whose gross sales does not exceed the VAT threshold shall have the
option to avail of:
Statement 1: Graduated rates under Section 24(A)(2)(a);
Statement 2: Twelve percent (12%) tax on gross sales

A. Both statements are true. B. Only statement 1 is true.

C. Both statements are false. D. Only statement 2 is true.

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LU_ FABM 2_Module 13

 5. A taxpayer whose gross sales does not exceed the VAT Threshold:
Statement I: Financial Statement (FS) is required to be attached in filing the
final income tax.
Statement II: Financial Statement (FS) is not required to be attached in filing
the final income tax.

A. Both statements are true. B. Both statements are false.

C. Only statement 1 is true. D. Only statement 2 is true.
In question 6-10 read the scenario given below. Answer the questions that follows.
Mr. BSO, is an employee of GOLD Inc. He is not engaged in business nor has
any other source of income other than his employment. For 2019, Mr. CSO earned a
total compensation income of Php 156,000.00 inclusive of his contribution to SSS
6,480, PhilHealth 3,960, and HDMF amount to Php1,200.00 and 13th month pay of
Php12,000.00. Mr. CSO earned, aside from his basic wage, additional pay of
Php140,000.00.

6. What is the gross income of Mr. BSO?

A. Php140,000 B. Php156,000 C. Php296,000 D. Php308,000

7. What is the total mandatory contribution?

A. Php6,480 B. Php11,640 C. Php35,640 D. Php175,640

8. What is the gross income net of mandatory contribution?

A. Php 133,520 B. Php284,360 C. Php 296,000 D. Php308,000

9. What is the taxable income?

A. Php144,360 B. Php272,360 C. Php284,360 D. Php296,000
10. What is the tax due?
A. Php0.00 B. Php4,472. C. Php6,872 D. Php9,200

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LU_ FABM 2_Module 13

Answer Key

21

LU_ FABM 2_Module 13

22

LU_ FABM 2_Module 13

LU_ FABM 2_Module 13
23
Pre-test/Post-test
1. C
2. C
3. C
4. C
5. D
6. C
7. B
8. B
9. B
10. B
References
Printed Materials:

Commission on Higher Education. (2016). Teaching Guide for Senior High School in
Fundamentals of Accountancy, Business and Management (pp. 78-99).
Diliman, Quezon City.

Salazar, Dani Rose C, (2017). Fundamentals of Accountancy, Business and

management 2. Manila Philippines: Rex Bookstore, Inc.

Website:

1. The National Internal Revenue Code. Retrieved July 29, 2020

https://www.bir.gov.ph/index.php/tax-code.html

2. Income tax exemption of minimum wage earners. Retrieved July 28, 2020
https://taxacctgcenter.ph/income-taxation-of-employee-compensation-
iphilippines/

3. RA 10963. Retrieved July 28, 2020

https://www.lawphil.net/statutes/repacts/ra2017/ra_10963_2017.html

4. Implementing Rules and Regulations of the TRAIN Law. Retrieved July 29,
2020 https://www.bir.gov.ph/index.php/revenue issuances/revenue-
regulations/2018-revenue-regulations.html

5. Social Security System. “Contribution schedule for regular social security,

employees’ compensation, and provident fund for regular employers &
employees, self-employed, ofws, voluntary & non-working spouse members
and household employers & kasambahay” Accessed August 22, 2021.
https://www.sss.gov.ph/sss/DownloadContent?fileName=2021-
CONTRIBUTION-SCHEDULE.pdf

6. Philippine Health Insurance Incorporation. “Premium contribution in the

National Health Insurance Program (NHIP) Pursuant to R.A. No. 11223 known
as the “Universal Health Care Act” Accessed August 22, 2021.
https://www.philhealth.gov.ph/circulars/2020/circ2020-0005.pdf
7. Home Development Mutual Fund. “Revised guidelines on Pag-IBIG Fund
membership”. Accessed August 22, 2021.
https://www.pagibigfund.gov.ph/document/pdf/circulars/provident/HDMF
%20Circular%20No.%20274%20-%20Revised%20Guidelines%20on%20Pag-
IBIG%20Fund%20Membership.pdf

8. Government Service Insurance System. “Retirement and other social

insurance benefits”. Accessed August 23, 2021.
https://www.gsis.gov.ph/downloads/publications/20150825-
Retirement_Brochure.pdf

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 For inquiries or feedback, please write or call:

Department of Education – SDO La Union

Curriculum Implementation Division
Learning Resource Management Section
Flores St. Catbangen, San Fernando City La Union 2500
Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
launion@deped.gov.ph
lrm.launion@deped.gov.ph

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LU_ FABM 2_Module 13