EXCLUSIONS FROM GROSS INCOME  Retirement benefits with a reasonable private benefit plan (50-10-1
rule)
Exclusion means items or receipts not included in the determination of the taxable
income because the law or treaty provides that they are exempt from income tax.
They are not included in the ITR unless information regarding them is specifically
called for.
CLASSIFICATIONS
1. Nontaxable Compensation
2. Nontaxable other receipts
NONTAXABLE COMPENSATION
1. Compensation income of Statutory Minimum Wage Earners (MWE)
 Including holiday pay, overtime pay, night differential pay and hazard
pay.
 Must have no other source of income. Otherwise, he shall not enjoy
the privilege of being a MWE and, therefore, his entire earnings are no
longer exempt from income tax.
 Statutory Minimum Wage shall refer to the rate fixed by the Regional
Tripartite Wage and Productivity Board. The established criteria shall
be the basis of exemption from income tax.
2. Income earned outside of NRC, RA and FC.
3. 13th month pay, bonuses and other benefits not exceeding P30,000.
 This includes that excess amount of the prescribed ceiling of de
minimis benefits.
4. Benefits under Employer’s Benefit Rule
 Those benefits required by the nature of work or is necessary to the
business of employer.
5. Proceeds of Life Insurance
 Those paid to the heirs or beneficiaries upon the death of the insured.
 Reason: this merely represents a reimbursement for the loss of life
suffered.
 If the beneficiary’s designation is revocable, it is subject to estate tax.
 When the insured outlived the policy, the proceeds received is taxable
to the extent of the excess of premium paid.
6. Retirement benefits, pensions and gratuities
 Separation pay beyond the control of the employee
 Social security retirement benefits
 Benefits received under US Veterans Administration
 Benefits received as provided by Social Security Act, including
Maternity benefits
 Benefits received from GSIS
7. Tax exempt contributions
 GSIS, SSS, Medicare Pag-ibig contributions and union dues of
individuals.
8. De Minimis benefits within the prescribed ceiling
9. Salaries and stipends in dollars received by RA serving as staff of the International
Rice Research Institute and the Ford Foundation
10. Tax exemption of allowances paid to military personnel
11. Compensation from casual employment
NONTAXABLE OTHER RECEIPTS
1. Amount received by the insured as a return of premiums paid by him under life
insurance
2. Gifts, Bequest and Devises
 They are subject to transfer taxes if received gratuitously. Otherwise,
they are subject to income tax.
 The income derived from such property is subject to income tax.
3. Income of any kind received as a result of treaty obligations of the Philippine
Government
4. Benefits received by residents under the USVA
5. Income derived from investment in the Philippines by foreign governments
6. Government income
 Reason: the State, in its exercise of sovereignty, does not tax itself or
its political subdivision
7. Tax exempt Prizes and Awards
  Those made primarily in recognition of religious, charitable, scientific,
educational, artistic, literary or civic achievement provided that the
recipient:
o Was selected without any action on his part to enter the contest
or proceeding
o Was not required to render substantial future services as a
condition to receive the amount.
 Prizes and awards in sports competitions
o Whether local or international competitions, held inside or
outside the Philippines.
o Provided they are accredited by Philippine Olympic Sport
Committee. Otherwise, they are subject to 20% withholding tax.
8. Gain from sale of investment with maturity of more than 5 years.
 Includes bonds, debentures or other certificates and redemption of
shares in mutual fund company
 This exemption is extended only to capital gains and not to interest
income.
 They merely represent return of capital or reimbursement for loss
suffered.
 Generally, physical, exemplary and moral damages are not taxable.
But damages for loss of profit in property are taxable.
17. Tax exempt employee’s trust
 Includes PERAA retirement trust plan on interest income derived from
it depositary bank under EFCDS of 7.5% withholding tax imposed.
18. Tax exempt Educational Institutions
 Maybe a government educational institution or a non-stock, non-profit
educational institution.
 Those income not derived actually, directly, or exclusively for the
intended purpose is taxable.
19. Tax exempt qualified senior citizen
 Those with annual taxable income not exceeding the poverty level of
P60,000 a year, except interest income.

9. Interest on long-term deposits or investments in banks 20. Tax exempt inventors and inventions
 with maturity of 5 years or more received by individuals except  Tax exemption of income derived from its commercial sale for the first
NRANEB 10 years
 Prizes given to inventors as a recognition for their inventions are
10. Interest received under EFCDS subject to final tax of 20%.
 Those received by Nonresident individuals or corporations
21. Tax exempt cooperative income
11. Interest on the price of land covered by CARP  Those derived from transaction with members.
 Cooperatives are however subject to the following taxes:
12. Interest on government bonds o VAT on purchases
o 20% final tax on interest income
13. Other Tax exempt interest income o 7.5% tax on foreign currency deposit.
 Those derived by Philippine National Red Cross from currency bank
deposit and yield are exempt from 20% final tax.
 Pag-ibig mortgage certificates categorized under long term
investment. (5yr term, P10,000 denominated, listed in PSE and PCD)

14. Intercorporate dividend by a DC from another DC

15. PCSO and Philippine Lotto winnings

16. Compensation for damages

 Includes those received as compensation for personal injuries and
sickness.