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Outline of

Individual Income
Taxation

Gross Income
from whatever
source whether
legal or illegal

Exclusions
from Gross
Income

= GROSS INCOME

Gross Income
from whatever
source whether
legal or illegal

Exclusions
from Gross
Income

= GROSS INCOME

Exclusions from Gross Income

1. Life Insurance Proceeds


The proceeds of life
insurance policies
paid to the heirs of
beneficiaries upon
the death of the
insured, whether in a

Exclusions from Gross Income

2. Amounts Received by Insured


as Returns of Premiums
The amount received by the
insured, as returns as
premiums paid by him under
life insurance, endowment,
annuity contract either during
the term or at the maturity of

Exclusions from Gross Income

3. Gifts, Bequest, and Devises


The value of property
acquired by way of
gratuitous titles such
as gift, donation,
contribution,
inheritance, bequest,

Exclusions from Gross Income

4. Compensation for injuries or


sickness
Amount received, through
accident or health insurance or
under workmens compensation
acts, as compensation for
personal injuries or sickness, plus
the amounts of any damages
received, whether by suit or

Exclusions from Gross Income

5. Returns of Capital
These are cash or non-cash
receipts representing
returns/reimbursements of the
taxpayers own money, funds,
property. Examples are cash
collections of the principal
account of loan receivable
excluding interest if there is any,

Gross Income
from whatever
source whether
legal or illegal

Exclusions
from Gross
Income

= GROSS INCOME

BUSIN
ESS
INCOM
E

COMPENSAT
ION INCOME

GROSS INCOME
PASSIVE
INCOME

BUSIN
ESS
INCOM
These are earnings resulting or
E from its main line of
derived
commercial business activity, such
as gross profit from sales of goods
services
This refers and
to the
income, profit or
gain earned and derived from the
conduct or pursuit of trade,
business or the exercise of a
profession

BUSIN
ESS
INCOM
E

COMPENSAT
ION INCOME

GROSS INCOME
PASSIVE
INCOME

COMPENSAT
ION INCOME
Refers to all kinds of items
of remunerations/
emoluments earned or
received in return for
services rendered

BUSIN
ESS
INCOM
E

COMPENSAT
ION INCOME

GROSS INCOME
PASSIVE
INCOME

Means, gains or income


items obtained from
activities in which the
taxpayer does not
participate on a regular
and continuing basis

PASSIVE
INCOME

xxxx

Allowable
Deduction

INTEREST EXPENSE
The amount of interest paid or
incurred within a taxable year on
indebtedness in connection with the
taxpayers profession, trade or
business shall be allowed as
deduction from gross income:
Provide, however that, the taxpayers
otherwise allowable deduction for

Allowable
Deduction

TAXES EXPENSE
Taxes whether local,
national or foreign, paid or
incurred within the taxable
year in connection with the
taxpayers profession,
trade or business, shall be
allowed as deduction form

Allowable
Deduction

LOSSES
Losses on property actually
sustained as a result of
natural calamities or human
intervention during the
taxable year and not
compensated for by
insurance or other forms of

Allowable
Deduction

BAD DEBT EXPENSE


Debts due to taxpayer actually
ascertained to be worthless
and charged off within the
taxable year are deductible,
except those not connected
with the exercise of profession,
trade or business and those
sustained in a transaction

Allowable
Deduction

DEPRECIATION EXPENSE
There shall be allowed as a
depreciation deduction a
reasonable allowance for
the exhaustion, wear and
tear (including reasonable
allowance for obsolescence)
of property used in the

Allowable
Deduction

DEPLETION EXPENSE

In the case of oil and gas wells


and mines, a reasonable
allowance for depletion or
amortization computed in
accordance with the costdepletion method shall be
granted under rules and
regulations to be prescribed by

Allowable
Deduction

CHARITABLE
CONTRIBUTIONS
Donations or contributions made by
taxpayers shall be categorized
either as fully non-deductible, fully
deductible but subject to limitation.

Allowable
Deduction
RESEARCH AND DEVELOPMENT
COST/ EXPENSE
A taxpayer may treat research
or development expenditures
which are paid or incurred by
him during the taxable year in
connection with his trade,
business or profession as
ordinary and necessary

Allowable
Deduction

PENSION TRUST
CONTRIBUTION
An employer or maintaining a
pension trust to provide for
the payment reasonable
pensions to his employees.

Allowable
Deduction
OTHER BUSINESS EXPENSES
IN GENERAL
There shall be allowed as
deduction from gross income all
the ordinary and necessary
expenses paid or incurred during
the taxable year in carrying on or
which are directly attributable to,
the development, management,
operation and/or conduct of the

xxxx

Rule 1. Basic Allowed


Exemption (BAPE)
In general, each individual taxpayer
shall be permitted to claim the basic
allowed personal exemption
amounting to 50,000, regardless, of
his/her civil/ married legally
separated, whether a resident citizen,
resident alien, non-resident alien
engaged in business in Philippines.

Rule 2. Additional Allowed


Personal Exemption (AAPE)
In general, each individual taxpayer shall
be permitted to claim the additional
allowed personal exemption amounting to
25,000, for each qualified dependent child,
but not exceed four (4) children, whether
such taxpayer is a head of a family,
married, married legally
Separated or married not legally
separated, whether a resident citizen,
resident alien, non-resident alien engaged
in business in the Philippines.

xxxx

Rules on health Hospitalization Insurance


Premium (HHIP)
The taxpayer is allowed to claim
an exemption for health
hospitalization insurance premium
subjected t the following
conditions and limitations.

Rules on health Hospitalization Insurance


Premium (HHIP)
a.) Said family (the husband and
wife, in case of married couple)
has a gross income of not more
than two hundred fifty thousand
Pesos (250,000) for the taxable
year.

Rules on health Hospitalization Insurance


Premium (HHIP)

b.) There must be an actual


health hospitalization
insurance premium payment
during the month/year.

Rules on health Hospitalization Insurance


Premium (HHIP)
c.) The claimable amount of
health hospitalization insurance
premium shall be lower amount
between the actual HHIP payment
or the limit HHIP amount
prescribed by law which shall not
exceed two thousand four
hundred pesos (2,400) per year or
two hundred pesos per month.

Rules on health Hospitalization Insurance


Premium (HHIP)
d.) In the case of married couple,
only the spouse claiming the
additional allowed personal
exemption for their children
dependents shall be entitled to
such exemption.

xxxx

Apply Tax Rates


The basic income tax due shall
be computed based on the
unified graduated/progressive
income tax rates as follows:

If the taxable net income is:


OVER

NOT OVER

TAX DUE
IS:

PLUS

OF
EXCESS
OVER

1.

P0.00

P10,000

P0

5%

P0

2.

10,000

30,000

500

10%

10,000

3.

30,000

70,000

2,500

15%

30,000

4.

70,000

140,000

8,500

20%

70,000

5.

140,000

250,000

22,500

25%

140,000

6.

250,000

500,000

50,000

30%

250,000

7.

500,000

Without
Limit

125,000

32%

500,000

xxxx

Expanded
Withholding tax
at Source Table

Classifications
of Individual
Taxpayer

INDIVIDUAL TAXPAYER

CITIZEN
NonReside
residen
nt
t
Citizen
Citizen
Not engaged in
trade/business
Special
Aliens

ALIEN
Nonresiden
t Alien

Ordinary
Aliens

Reside
nt
Alien

engaged in
trade/business

Foreign Petroleum Service


Contractor or Sub-contractor
engaged in Petroleum Operations
in the Philippines under a
contract with the government
Offshore Banking Units
Regional Operating
Headquarters of Multi-national
corporations
Regional Area Headquarters of
Multi-national corporations

Special
Aliens

Income Tax
Matrix

Taxpayers
Income
Deductions

Personal
Exemptions
Tax Rate

Individu
Individu
als
als
Compensa
Compensa
tion/Busin
tion/Busin
ess/
ess/
Profession
Profession
Itemized
Itemized
deduction
deduction
or
or 40%
40%
OSD
OSD based
based
in
in gross
gross
receipts
receipts
form
form
business
business
Basic
Basic
or
or
50,000
50,000
profession
profession
Additional
Additional
25,000
25,000
Tabular
Tabular
Tax
Tax on
on
individuals
individuals

Corporat
Corporat
ion
ion

Busines
Busines
ss
Income
Income

Itemized
Itemized
or
or 40%
40%
OSD
OSD based
based
on
on Gross
Gross
Income
Income

Partnershi
Partnershi Estates/Tr
Estates/Tr
p
p
ust
ust
Busine
Busine
Servic
Servic
Business
Business
ss
ss
ee
Income
Income
Incom
Incom
Incom
Incom
ee

ee

Itemiz
Itemiz
ed
ed or
or
40%
40%
OSD
OSD
based
based
on
on
Gross
Gross
Profit
Profit

Itemiz
Itemiz
ed
ed or
or
40%
40%
OSD
OSD
based
based
on
on
Gross
Gross
Receip
Receip
ts
ts

Itemized
Itemized or
or
40%
40% OSD
OSD
based
based on
on
Gross
Gross
Receipts
Receipts

Basic
Basic
20,000
20,000
30%
30%
Normal
Normal
Corporate
Corporate
income
income
Tax/2%
Tax/2%
MCIT
MCIT

30%
30%
Norma
Norma
ll
Corpor
Corpor
ate
ate

Incom
Incom
ee

Tax
Tax
Exemp
Exemp
tt

Tabular
Tabular Tax
Tax
on
on
Individuals
Individuals