Individual Income Taxation

PowerPoint Presentation

Outline of Individual Income Taxation1Gross Income from whatever source whether legal or illegalExclusions from Gross Income= GROSS INCOME2Gross Income from whatever source whether legal or illegalExclusions from Gross Income= GROSS INCOME3Exclusions from Gross Income1. Life Insurance ProceedsThe proceeds of life insurance policies paid to the heirs of beneficiaries upon the death of the insured, whether in a single sum or otherwise4Exclusions from Gross Income2. Amounts Received by Insured as Returns of PremiumsThe 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 the term mentioned in the contract or upon surrender of the contract5Exclusions from Gross Income3. Gifts, Bequest, and DevisesThe value of property acquired by way of gratuitous titles such as gift, donation, contribution, inheritance, bequest, devise, or descent6Exclusions from Gross Income4. Compensation for injuries or sicknessAmount 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 agreement, on account of such injuries or sickness7Exclusions from Gross Income5. Returns of CapitalThese 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, sale of property at cost price if there is any, sale of property at cost price of without gain, and income tax refunds.8Gross Income from whatever source whether legal or illegalExclusions from Gross Income= GROSS INCOME9GROSS INCOMEBUSINESS INCOMECOMPENSATION INCOMEPASSIVEINCOME10BUSINESS INCOMEThese are earnings resulting or derived from its main line of commercial business activity, such as gross profit from sales of goods and servicesThis refers to the income, profit or gain earned and derived from the conduct or pursuit of trade, business or the exercise of a profession11GROSS INCOMEBUSINESS INCOMECOMPENSATION INCOMEPASSIVEINCOME12COMPENSATION INCOMERefers to all kinds of items of remunerations/ emoluments earned or received in return for services rendered GROSS INCOMEBUSINESS INCOMECOMPENSATION INCOMEPASSIVEINCOME14PASSIVEINCOMEMeans, gains or income items obtained from activities in which the taxpayer does not participate on a regular and continuing basis

xxxx16AllowableDeductionINTEREST EXPENSEThe 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 interest expense shall be reduced by an amount equal to thirty-three percent (33%) of the earned interest subjected to final income tax17AllowableDeductionTAXES EXPENSETaxes 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 his/her gross income18LOSSESLosses 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 indemnityAllowableDeduction19BAD DEBT EXPENSEDebts 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 entered into between related taxpayersAllowableDeduction20DEPRECIATION EXPENSEThere 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 trade or businessAllowableDeduction21DEPLETION EXPENSEIn the case of oil and gas wells and mines, a reasonable allowance for depletion or amortization computed in accordance with the cost-depletion method shall be granted under rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of BIR CommissionerAllowableDeduction22Donations or contributions made by taxpayers shall be categorized either as fully non-deductible, fully deductible but subject to limitation.CHARITABLE CONTRIBUTIONSAllowableDeductionA 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 expenses which are not chargeable to capital accountRESEARCH AND DEVELOPMENT COST/ EXPENSEAllowableDeductionAn employer or maintaining a pension trust to provide for the payment reasonable pensions to his employees.PENSION TRUST CONTRIBUTIONAllowableDeductionThere 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 trade, business or exercise of a profession. OTHER BUSINESS EXPENSES IN GENERALAllowableDeduction

xxxxTable27Rule 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. 28In 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 legallySeparated or married not legally separated, whether a resident citizen, resident alien, non-resident alien engaged in business in the Philippines. Rule 2. Additional Allowed Personal Exemption (AAPE)

xxxxTable30Rules 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. 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. Rules on health Hospitalization Insurance Premium (HHIP)

xxxxTable36Apply Tax RatesThe basic income tax due shall be computed based on the unified graduated/progressive income tax rates as follows:If the taxable net income is:OVERNOT OVERTAX DUE IS:PLUSOF EXCESS OVER1.P0.00P10,000P 0 5%P 0 2. 10,00030,00050010%10,0003. 30,00070,0002,50015%30,0004.70,000140,0008,50020%70,0005.140,000250,00022,50025%140,0006.250,000500,00050,00030%250,0007.500,000Without Limit125,00032%500,000

http://www.bir.gov.ph/index.php/tax-information/income-tax.html40

xxxxTable41Expanded Withholding tax at Source Table42

Classifications of Individual Taxpayer46

INDIVIDUAL TAXPAYERCITIZENALIENNon-resident CitizenResident CitizenResident AlienNon-resident Alienengaged in trade/businessNot engaged in trade/businessSpecial AliensOrdinary Aliens47Special AliensRegional Area Headquarters of Multi-national corporationsRegional Operating Headquarters of Multi-national corporationsOffshore Banking UnitsForeign Petroleum Service Contractor or Sub-contractor engaged in Petroleum Operations in the Philippines under a contract with the governmentIncome Tax Matrix49TaxpayersIndividualsCorporationPartnershipEstates/TrustIncomeCompensation/Business/ProfessionBusiness IncomeBusiness Income

Business IncomeServiceIncome

DeductionsItemized deduction or 40% OSD based in gross receipts form business or professionItemized or 40% OSD based on Gross Income

Itemized or 40% OSD based on Gross Profit

Itemized or 40% OSD based on Gross Receipts

Itemized or 40% OSD based on Gross Receipts

PersonalExemptionsBasic 50,000 Additional 25,000Basic 20,000

Tax RateTabular Tax on individuals

30% Normal Corporate income Tax/2% MCIT30% Normal Corporate Income Tax/2% MCITTax Exempt

Tabular Tax on Individuals

50