Income Tax

is a tax on a person's income, emoluments, profits arising from property,

practice of profession, conduct of trade or business or on the pertinent items
of gross income specified in the Tax Code of 1997 (Tax Code), as amended,
less the deductions and/or personal and additional exemptions, if any,
authorized for such types of income, by the Tax Code, as amended, or other
special laws.

Who Are Required To File Income Tax Returns?

Individuals
Resident citizens receiving income from sources within or outside
the Philippines
Employees deriving purely compensation income from 2 or more employers,
concurrently or successively at anytime during the taxable year
Employees deriving purely compensation income regardless of the
amount, whether from a single or several employers during the calendar
year, the income tax of which has not been withheld correctly (i.e. tax due is
not equal to the tax withheld) resulting to collectible or refundable return
self-employed individuals receiving income from the conduct of trade or business
and/or practice of profession
individuals deriving mixed income, i.e., compensation income and
income from the conduct of trade or business and/or practice of profession
individuals deriving other non-business, non-professional related income in
addition to compensation income not otherwise subject to a final tax
individuals receiving purely compensation income from a single
employer, although the income of which has been correctly withheld, but
whose spouse is not entitled to substituted filing
marginal income earners
Non-resident citizens receiving income from sources within the Philippines
Aliens, whether resident or not, receiving income from sources within the
Philippines
Corporation shall include partnerships, no matter how created or organized.
Domestic corporations receiving income from sources within and outside
the Philippines
Foreign corporations receiving income from sources within the Philippines
Estates and trusts engaged in trade or business
Income
All wealth, which flows into the taxpayer other than as a mere return of capital.
Taxable Income
The pertinent items of gross income specified in the Tax Code as amended, less the
deductions and/or personal and additional exemptions, if any, authorized for such
types of income, by the Tax Code or other special laws.
Gross Income
All income derived from whatever source.
What comprises gross income?
Gross income includes, but is not limited to the following:

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Compensation for services, in whatever form paid, including but not

limited to fees, salaries, wages, commissions and similar item
Gross income derived from the conduct of trade or business or the
exercise of profession
Gains derived from dealings in property
Interest
Rents
Royalties
Dividends
Annuities
Prizes and winnings
Pensions
Partner's distributive share from the net income of the general
professional partnerships
What are some of the exclusions from gross income
Life insurance
Amount received by insured as return of premium
Gifts, bequests and devises
Compensation for injuries or sickness
Income exempt under treaty
Retirement benefits, pensions, gratuities, etc.
Miscellaneous items
income derived by foreign government
income derived by the government or its political subdivision
prizes and awards in sport competition
prizes and awards which met the conditions set in the Tax Code
13th month pay and other benefits
GSIS, SSS, Medicare and other contributions
gain from the sale of bonds, debentures or other certificate of
indebtedness
gain from redemption of shares in mutual fund
What are the allowable deductions from gross income
Except for taxpayers earning compensation income arising from personal services
rendered under an employer-employee relationships where the only deduction
provided that the gross family income does not exceed P250,000 per family is the
premium payment on health and/or hospitalization insurance, a taxpayer may opt to
avail any of the following allowable deductions from gross income:
a). Optional Standard Deduction - an amount not exceeding 40% of the net
sales for individuals and gross income for corporations; or
b) Itemized Deductions which include the following:

Expenses

Interest

Taxes

Losses

Bad Debts

Depreciation

Depletion of Oil and Gas Wells and Mines

Charitable Contributions and Other Contributions
Research and Development
Pension Trusts
In addition, individuals who are either earning compensation income, engaged in
business or deriving income from the practice of profession are entitled to personal
and additional exemptions as follows:
Personal Exemptions:
For single individual or married individual judicially decreed as legally separated
with no qualified dependentsP 50,000.00
For head of familyP 50,000.00
For each married individual *P 50,000.00
Note: In case of married individuals where only one of the spouses is deriving
gross income, only such spouse will be allowed to claim the personal exemption.
Additional Exemptions:
For each qualified dependent, an P25,000 additional exemption can be
claimed but only up to 4 qualified dependents
The additional exemption can be claimed by the following:
The husband who is deemed the head of the family unless he explicitly
waives his right in favor of his wife
The spouse who has custody of the child or children in case of legally
separated spouses. Provided, that the total amount of additional exemptions that
may be claimed by both shall not exceed the maximum additional exemptions
allowed by the Tax Code.
The individuals considered as Head of the Family supporting a qualified
dependent
The maximum amount of P 2,400 premium payments on health and/or
hospitalization insurance can be claimed if:
Family gross income yearly should not be more than P 250,000
For married individuals, the spouse claiming the additional exemptions
for the qualified dependents shall be entitled to this deduction
7) Who are required to file the Income Tax returns?
Individuals
Resident citizens receiving income from sources within or outside the
Philippines
o
employees deriving purely compensation income from 2 or more
employers, concurrently or successively at anytime during the taxable year
o
employees deriving purely compensation income regardless of the
amount, whether from a single or several employers during the calendar year,
the income tax of which has not been withheld correctly (i.e. tax due is not
equal to the tax withheld) resulting to collectible or refundable return
o
self-employed individuals receiving income from the conduct of trade
or business and/or practice of profession
o
individuals deriving mixed income, i.e., compensation income and
income from the conduct of trade or business and/or practice of profession
o
individuals deriving other non-business, non-professional related
income in addition to compensation income not otherwise subject to a final tax
o
individuals receiving purely compensation income from a single
employer, although the income of which has been correctly withheld, but whose
spouse is not entitled to substituted filing

marginal income earners

Non-resident citizens receiving income from sources within the

Philippines

Aliens, whether resident or not, receiving income from sources within

the Philippines
Corporations no matter how created or organized including
partnerships
o
domestic corporations receiving income from sources within and
outside the Philippines
o
foreign corporations receiving income from sources within the
Philippines
o
taxable partnerships
Estates and trusts engaged in trade or business
8) Who are not required to file Income Tax returns?
a. An individual who is a minimum wage earner
b. An individual whose gross income does not exceed his total personal and
additional exemptions
c. An individual whose compensation income derived from one employer does not
exceed P 60,000 and the income tax on which has been correctly withheld
d. An individual whose income has been subjected to final withholding tax (alien
employee as well as Filipino employee occupying the same position as that of the
alien employee of regional headquarters and regional operating headquarters of
multinational companies, petroleum service contractors and sub-contractors and
offshore-banking units, non-resident aliens not engaged in trade or business)
e. Those who are qualified under substituted filing. However, substituted filing
applies only if all of the following requirements are present :
the employee received purely compensation income (regardless of
amount) during the taxable year
the employee received the income from only one employer in the
Philippines during the taxable year
the amount of tax due from the employee at the end of the year equals
the amount of tax withheld by the employer
the employees spouse also complies with all 3 conditions stated above
the employer files the annual information return (BIR Form No. 1604CF)
the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to
each employee.
9) Who are exempt from Income Tax?
Non-resident citizen who is:
a) A citizen of the Philippines who establishes to the satisfaction of the
Commissioner the fact of his physical presence abroad with a definite intention
to reside therein
b) A citizen of the Philippines who leaves the Philippines during the taxable year
to reside abroad, either as an immigrant or for employment on a permanent
basis
c) A citizen of the Philippines who works and derives income from abroad and
whose employment thereat requires him to be physically present abroad most of
the time during the taxable year
d) A citizen who has been previously considered as a non-resident citizen and
who arrives in the Philippines at any time during the year to reside permanently

in the Philippines will likewise be treated as a non-resident citizen during the

taxable year in which he arrives in the Philippines, with respect to his income
derived from sources abroad until the date of his arrival in the Philippines.
Overseas Filipino Worker, including overseas seaman
An individual citizen of the Philippines who is working and deriving income from
abroad as an overseas Filipino worker is taxable only on income from sources
within the Philippines; provided, that a seaman who is a citizen of the Philippines
and who receives compensation for services rendered abroad as a member of
the complement of a vessel engaged exclusively in international trade will be
treated as an overseas Filipino worker.
NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of
the Philippine Embassy/consulate is not treated as a non-resident citizen, hence
his income is taxable.
10) What are the procedures in filing Income Tax returns (ITRs)?
For with payment ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q /
1704)
File the return in triplicate (two copies for the BIR and one copy for the taxpayer)
with the Authorized Agent Bank (AAB) of the place where taxpayer is registered
or required to be registered. In places where there are no AABs, the return will
be filed directly with the Revenue Collection Officer or duly Authorized Treasurer
of the city or municipality in which such person has his legal residence or
principal place of business in the Philippines, or if there is none, filing of the
return will be at the Office of the Commissioner.
For no payment ITRs -- refundable, break-even, exempt and no
operation/transaction, including returns to be paid on 2nd installment and returns
paid through a Tax Debit Memo(TDM)
File the return with the concerned Revenue District Office (RDO) where the
taxpayer is registered. However, "no payment" returns filed late shall be
accepted by the RDO but instead shall be filed with an Authorized Agent Bank
(AAB) or Collection Officer/Deputized Municipal Treasurer (in places where there
are no AABs), for payment of necessary penalties.