INCLUSIONS IN GROSS INCOME
ITEMS OF GI SUBJECT TO RIT
1. Compensation for services in whatever form
paid.
 Except fringe benefits received by
managerial and supervisory employee.
This is subject to FIT.
2. Gross income from business or exercise of
profession
 Include income from all sources, except
those subject to FIT and CGT, whether
from legal or illegal source, or whether
the business is registered or not.
 Business income not included:
a. Those exempt from tax
i. Gross income from BMBE
ii. Gross income from entity
enjoying tax holiday incentive
b. Those subject to special tax regimes:
i. Zone authorities – 5% GROSS
income tax
c. Those subject to final tax:
3. Gains derived in dealing in properties
 This refers to gains or losses in dealing in
ordinary assets and capital assets, other
than domestic stocks and real properties.
 ordinary gains (not net of ordinary loss)
and net capital gains are items of gross
income
 ordinary losses, but not net capital losses,
are items of allowable deductions
4. Interest
 It only includes those items not subject to
FIT.
 Exempt interest income:
a. Those earned by land owners in
disposing their land to their tenant in
pursuant to CARP.
b. Imputed interest (theoretical interest)
5. Rents
 Composition of rent income upon receipt:
a. Obligations assumed by the lessee
b. Unrestricted advance rentals
c. Restricted advance rentals that are to
be applied in future years or upon
termination of the lease
d. Leasehold improvements
 Items not included in gross income upon
receipt:
a. Those constitute loan
b. Security which are refundable
6. Royalties
 Composition of royalties subject to RIT:
1. Those active in nature
2. Those passive in nature, but not
subject to FIT
3. Royalties from outside the Philippines
4. Royalties earned by Resident Foreign
Corporation
7. Dividends
 This pertains to cash, property, and script
dividend from RESIDENT AND NON-
RESIDENT FOREIGN CORPORATION
8. Annuities
 Excess of annuity payments over
premiums paid.
9. Prizes and winnings
SOURCE
WITHIN ABROAD
Prizes
≤ 10,000 Regular Tax Regular Tax
> 10,000 FIT Regular Tax
Winnings FIT Regular Tax
 Exempt prizes and winnings:
a. Prizes received without effort
b. Prizes in athletic competitions
sanctioned by their respective
national sports organization
c. Winnings from PCSO or lotto, except
those lotto winnings from abroad.
 Winnings and prize of Domestic
Corporation and Resident Foreign
Corporation are not subject to FIT;
therefore, if prizes and winnings are
taxable, it will be taxed to RIT.
10. Pensions and retirement benefits that fail the
exclusion criteria.
11. Distributive share from net income of a
GPP, Co-ownership, and Exempt joint
venture
 Excludes income subjected to FIT and
CGT.
12. Income distribution from a taxable estate, or
trust, except those subject to FIT and CGT
13. Farming Income
a. Raise and sell operation
GI = proceeds from sale; raising
expenses are items of deductions
b. Purchase and sell operation
GI = gross profit on sale
 INCLUSIONS IN GROSS INCOME

14. Recoveries of past deductions

 Only include those resulted in tax benefit
to the taxpayer
 Refund of non-deductible expenses will
never create tax benefit, example:
a. Philippine income Tax
b. Income tax paid abroad, and taxpayer
opt to make it as a tax credit
c. Special assessment
d. Estate or donor’s tax
e. Stock transaction tax

15. Reimbursement of expenses

16. Cancellation of indebtedness in exchange

for service.

POWER OF THE CIR TO REDISTRIBUTE

INCOME AND DEDUCTIONS

The commissioner is authorized to distribute,

apportion, or allocate gross income or deductions
between or among organization, if he determined
that such distribution, apportionment, or allocation
is necessary in order to avoid evasion of taxes.
(Read banggawan page 286-291)