T

R
A REVISED
INDIVIDUAL
I INCOME TAX
N
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WHO ARE THE INDIVIDUAL
TAXPAYERS
Classification according to the source of income:

1. Compensation income earners — Individuals whose source

of income is PURELY derived from an employer-employee
relationship

2. Self-employed — a sole proprietor or an independent

contractor who reports income earned from self-
employment. S/he controls who s/he works for, how the
work is done and when it is done. It includes those hired
under a contract of service or job order, and professionals
whose income is derived purely from the practice of
profession and not under an employer-employee
relationship.

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WHO ARE THE INDIVIDUAL
TAXPAYERS
Classification according to the source of income:

3. Mixed Income Earner — an individual earning

compensation income from employment, and income from
business, practice of profession and/or other sources aside
from employment.

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REVISED GRADUATED INCOME
TAX RATES (1ST tranche)
NEW GRADUATED INCOME TAX RATES OLD GRADUATED
(Effective January 1, 2018 to December INCOME TAX RATES
31, 2022)
Not over P250k 0% Not over P10k 5%
Over P250k but not more 20% Over P10k but not more P500+10%
than P400k than P30k
Over P400k but not more P30k + 25% Over P30k but not more P2.5K + 15%
than P800k than P70k
Over P800k but not more P130k + 30% Over P70k but not more P8.5K + 20%
than P2M than P140k
Over P2M but not more P490k + Over P240k but not more P22.5k + 25%
than P8M 32% than P250k
Over P8M P2.4M + Over P250k but not more P50k + 30%
35% than P500k
Over P500k P125k + 32%

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REVISED GRADUATED INCOME
TAX RATES (2nd tranche)
NEW GRADUATED INCOME TAX RATES NEW GRADUATED INCOME TAX RATES
(Effective January 1, 2023 and onwards) (Effective January 1, 2018 to December 31,
2022)
Not over P250k 0% Not over P250k 0%
Over P250k but not more than 15% Over P250k but not more than 20%
P400k P400k
Over P400k but not more than P22.5k + Over P400k but not more than P30k +
P800k 20% P800k 25%
Over P800k but not more than P102.5k + Over P800k but not more than P130k +
P2M 25% P2M 30%
Over P2M but not more than P402.5k + Over P2M but not more than P490k +
P8M 30% P8M 32%
Over P8M P2.2025M Over P8M P2.41M +
+ 35% 35%
EXCLUDED 13TH MONTH PAY
AND OTHER BENEFITS
➢ Non-taxable 13th month pay and other benefits ceiling has
been increased:
from: P82,000
to: P90,000
Additional exemption of P8,000.00

➢ The ceiling of P90,000 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. (RR 11-2018)

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REVISED GRADUATED
INCOME TAX RATES
Highlights:

✓ The first P250,000 of total taxable income is now EXEMPT.

▪ BUT, Basic personal and additional exemptions have been
removed as allowable /authorized deduction.

✓ Amounts in each bracket range have been WIDENED.

▪ AND, the tax rate in each bracket has been increased.

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TRAIN vs. OLD INCOME
TAX COMPUTATION
Computation (for a purely compensation earner individual)
TRAIN OLD
LAW NIRC
Annual Taxable
Compensation 600,000 600,000
Less: APE - 150,000
Taxable Income 600,000 450,000
Income Tax Due:
Not over P400k/P250k 30,000 50,000
In excess of P400,000 50,000 60,000
80,000 110,000
Annual income
Php 30,000
tax savings

Daily tax savings – P82.19 (using 365-day rule)

TRAIN vs. OLD INCOME
TAX COMPUTATION
Savings
INCOME BRACKET
TRAIN OLD NIRC (Loss)
- 250,000.00 - 14,500.00 14,500.00
Over 250,000.00 400,000.00 30,000.00 50,000.00 20,000.00
Over 400,000.00 800,000.00 130,000.00 173,000.00 43,000.00
Over 800,000.00 2,000,000.00 490,000.00 557,000.00 67,000.00
Over 2,000,000.00 8,000,000.00 2,410,000.00 2,477,000.00 67,000.00
Over 8,000,000.00 10,235,000.00 3,192,250.00 3,192,200.00 (50.00)
Maximum Daily Tax Savings – P183.56
OPTIONAL 8% GROSS
TAX (NEW)
✓ Tax rate and base:
8% of [gross sales and/or gross receipts and other non-
operating income, (in excess of P250,000, if
applicable)].

✓ 8% gross tax is in lieu of:

i. Income tax; AND
ii. 3% percentage tax (under Section 116 of the Tax
Code)
OPTIONAL 8% GROSS
TAX (NEW)
✓ Who are QUALIFIED to avail:
i. Purely self-employed individuals and/or professionals;
OR
ii. Mixed income earners (i.e., earning both
compensation income and income from business or
practice of profession;
iii. Whose Gross Sales or Gross Receipts and Other Non-
operating Income Do Not Exceed the VAT Threshold
as provided in Section 109(BB), ie., P3M threshold;
AND
iv. Must be a Non-VAT registered person (and subject to
3% Percentage tax)
OPTIONAL 8% GROSS
TAX (NEW)
✓ Who are NOT QUALIFIED to avail:
i. PURELY compensation income earners (and MIXED
income earner, with respect to his/her compensation
income);
ii. VAT-registered taxpayers, regardless of the amount of
gross sales/receipts and other non-operating income;
iii. Non-VAT taxpayers whose gross sales/receipts and
other non-operating income exceeded the P3M VAT
threshold;
iv. Taxpayers who are subject to Other Percentage Taxes
under Title V of the Tax Code, as amended, except
those under Section 116 of the same title;
OPTIONAL 8% GROSS
TAX (NEW)
✓ Who are NOT QUALIFIED to avail: Cont’n.
v. Partners of a General Professional Partnership (GPP)
since their distributive share from the GPP is already
net of costs and expenses; and
vi. Individuals enjoying income tax exemption such as
those registered under the Barangay Micro Business
Enterprises (BMBEs), etc., since taxpayers are not
allowed to avail of double or multiple tax exemptions
under different laws, unless specifically provided by law.
OPTIONAL 8% GROSS
TAX (NEW)
✓ WHEN to avail:
❑ Taxpayer must signify his/her intention to avail of the
8% gross tax with the prescribed period, as follows:

Qualified Taxpayer When

New business • Upon application (BIR Form NO. 1905,
registrant end date the PT); or
• Initial quarterly filing of IT or PT return
Existing registered ▪ Update COR (to end date the PT); or
taxpayer ▪ First quarter filing of IT or PT return
SUMMARY:
COMPARISON
PARTICULARS GRADUATED IT 8% IT RATES
RATES
Applicability In general, May be availed by qualified
applicable to ALL individuals engaged in
individual business/practice of
taxpayers (Default profession whose gross
IT rate) sales/receipts and other non-
operating income did not
exceed P3M
Basis of IT Taxable income Gross sales receipts and
other non-operating income
Business Tax PT or VAT If qualified: No subject to PT
ILLUSTRATION:
GIT OR 8%
Illustration 1.1: PURELY self-employed/professionals

Annual gross receipts 2,000,0000

Less: Exemption up to P250,000 250,000
Gross taxable receipts 1,750,000
ANNUAL INCOME TAX DUE (8%) 140,000
Less: Creditable Withheld Taxes (5% or NIL) 100,000
INCOME TAX STILL DUE 40,000

Note:
▪ No longer liable to Percentage Tax (ie., P2M x 3% = P60,000)
▪ Therefore, the government shall not withhold 3% OPT.
ILLUSTRATION:
GIT OR 8%
Illustration 1.2: Compared with Graduated Income Tax (claimed
40% OSD)

Annual gross receipts 2,000,0000

40% OSD 800,000
Taxable income 1,200,000
ANNUAL INCOME TAX DUE (0-35%) 250,000
Less: Creditable Withheld Taxes (5% or NIL) 100,000

INCOME TAX STILL DUE 150,000

ILLUSTRATION:
GIT OR 8%
Illustration 1.3: Compared with Graduated Income Tax (claimed
itemized deductions)

Annual gross receipts 2,000,0000

Itemized deductions (actual) 1,200,000
Taxable income 800,000
ANNUAL INCOME TAX DUE (0-35%) 130,000
Less: Creditable Withheld Taxes (5% or NIL) 100,000

QUARTERLY/ANNUAL INCOME TAX STILL DUE 30,000

Note: Plus 3% PT
ILLUSTRATION:
GIT OR 8%
Illustration 2.1: Mixed income earner (8% IT on business income)
Annual taxable compensation income 300,000
Income tax due (Excess P50,000 @ 20%) (A) 10,000

Business income:
Annual gross receipts 2,000,000
Income tax due (8% of P2M) (B) 160,000
TOTAL INCOME TAX DUE (C )= (A)+(B) 170,000
ILLUSTRATION:
GIT OR 8%
Illustration 2.2: Mixed income earner (Graduated IT and OSD)

Annual taxable compensation income 300,000

Less: Exempt 250,000
Taxable compensation income (A) 50,000
Business income:
Annual gross receipts 2,000,000
Less: 40% OSD 800,000
Business Income (B) 1,200,000
Taxable income ( C) = (A)+(B) 1,250,000
TOTAL INCOME TAX DUE 265,000
ILLUSTRATION:
GIT OR 8%
Illustration 2.3: Mixed income earner (Graduated IT and itemized
deductions)
Annual taxable compensation income 300,000
Less: Exempt 250,000
Taxable compensation income (A) 50,000
Business income:
Annual gross receipts 2,000,000
Less: Itemized deductions 1,200,000
Business Income (B) 800,000
Taxable income ( C) = (A)+(B) 850,000
TOTAL INCOME TAX DUE 220,000
REVISED FINAL TAX RATES ON
CERTAIN PASSIVE INCOME
PASSIVE INCOME NEW OLD
FWT/CGT FWT/CGT
RATE RATE
PCSO and Lotto winnings above 20% EXEMPT
P10,000
PCSO and Lotto winnings amounting EXEMPT EXEMPT
to P10,000 or less
Interest income received from a 15% 7.5%
depository bank under expanded
foreign currency deposit system
Capital gains from the sale of shares 15% of Net 5%/10% of Net
of stocks not traded in the stock Capital Gains Capital Gains
exchange.
INSTALLMENT PAYMENT OF
INCOME TAX DUE
➢ Only an individual taxpayer may elect to pay income tax
in installment, subject to the following:
i. Annual income tax due is in excess of P2,000; AND
ii. Payable only in two installments, as follows:
▪ 1st instalIment – pay when the return is filed;
▪ 2nd instalment – on or before October 15,
following the close of the calendar year.
FS REQUIREMENTS
✓ No FS required:
i. If qualified and availed of 8% gross income tax; and
ii. If qualified and availed of 40% Optional Standard Deduction
✓ Unaudited FS required:
▪ Those whose gross quarterly sales, earnings, receipts or
output DO NOT exceed Three Million Pesos (P3,000,000) and
do not avail of 8% gross income tax or 40% OSD.
✓ Audited FS:
▪ Those whose gross quarterly sales, earnings, receipts or
output exceed Three Million Pesos (P3,000,000) (before
P600,000 or P150,000 per quarter).
FRINGE BENEFIT TAX
RATE
➢ Fringe benefit tax rate has been increased from 32% to 35%.
➢ Alien individuals employed by:
i. Regional Operating Headquarters;
ii. Regional Area Headquarters;
iii. Offshore Banking Units; and
iv. Petroleum Service Contractor
are now subject to the same FBT rate of 35%. They are no
longer entitled to 15% FBT rate, pursuant to the veto
statement of the President.