Blt 134 chapter 2

TAXATION OF INDIVIDUALS
Chapter 2

CLASSIFICATION OF INDIVIDUALS
1. Citizen
a. Resident
b. Non-Resident
2. Alien
a. Resident
b. Non-Resident
1. Engaged in trade or business in the Philippines
2. Not engaged in trade or business in the Philippines
3. Employed by
A. Regional or area headquarters and regional operating headquarters
of multinational entities in the Philippines that are engaged in
international trade with affiliates and subsidiary branch offices in the
Asia-Pacific region
B. Offshore banking units
C. Petroleum contractors and sub-contractors
end

CITIZEN
The following shall be considered citizens of the Philippines:
 Those who are citizens of the Philippines at the time of the adoption of
the February 2, 1987 Constitution;
 Those whose fates or mothers are citizens of the Philippines
 Those born before January 17, 1972, the date of the doption of the
1973 Constitution, of Filipino mothes, who elect Philippine citizenship
upon reaching the age of majority; and
 Those who are naturalized in accordance with law.

end

CITIZEN (CONT’D)
A. Resident Citizen is a Filipino citizen who permanently resides in the
Philippines.
B. Non-Resident Citizen means:
 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
 A citizen of the Philippines who leaves the Philippines during the
taxble year to reside abroad, either as an immigrant or for
employment on a permanent basis

CITIZEN (CONT’D)
 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. “Most of the time” is interpreted
to mean presence abroad for at least 183 days during the taxable year.

CITIZEN (CONT’D)
 A citizen who has been previously considered as non-resident citizen and
who arrives in the Philippines at any time during the taxable year to reside
permanently in the Philippines shall likewise be treated as a non-resident
citizen for 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.
 The taxpayer shall submit proof to the Commissioner toshow his intention
of leaving the Philippines to reside permenently abroad or return to and
reside in the Philippines, as the case may be.
End

ALIEN
1. Resident Alien – means an individual whose residence is within the
Philippines and who is not a citizen thereof. He is one who is actually
present in the Philippines and who is not a mere transient or sojourner.
2. Non-resident Alien (NRA) – means an individual whose residence is not
within the Philippines and who is not a citizen thereof.

ALIEN (CONT’D)
a. NRA engaged in trade or business (NRA-ETB)- means that the alien is
carrying on a business in the Philippines. It connotes more than a
single act or isolated transactions. It involves some continuity of
action. The term trade, business or profession shall not include
performance of services by the taxpayer as an employee but it
includes the performance of the functions of a public office. A non-
resident alient who has stayed in the Philippines for more than 180
days during any calendar year shall be deemed doing business in the
Philippines.
b. NRA not doing business in the Philippines (NRA-NETB) is an alien who
stayed in the Philippines 180 days or less.
end

OFFSHORE BANKING UNIT (OBU)

A branch, subsidiary or affiliate of a foreign banking
corporation which is duly authorized by the BSP to
transact offshore banking business in the Philippines in
accordance with the provisions of Presidential Decree
No. 1034 as implemnted by Central Bank (now BSP)
circular No. 1389, as amended.
end

TERMS TO CONSIDER IN THE RECOGNITION OF INCOME OF CITIZENS AND
ALIENS

FOREIGN CURRENCY DEPOSIT SYSTEM(FCDS) shall refer to the conduct of
banking transactions whereby any person, whether natural or
juridical, may deposit foreign currencies forming part of the Philippine
intenatinal reserves, in accordance with theprovisions of RA No. 6426
entitled “An Act Instituting a Foreign Currency Deposit System in the
Philippines, and for Other Purposes”.
FOREIGN CURRENCY DEPOSIT (FCD) UNIT shall refer to the unit of a local bank
or a local branch of a foreign bank authorized by the BSP to engage in
foreign-denominated transactions, pursuant to the provisions of RA No.
6426 as amended.

TERMS TO CONSIDER IN THE RECOGNITION OF INCOME OF CITIZENS AND
ALIENS (CONT’D)

LOCAL BANK shall refer to a thrift bank or a commercial bank organized under
the laws of the Republic of the Philippines.
LOCAL BRANCH OF A FOREIGN BANK shall refer to a branch of a foreign bank
doing business in the Philippines, pursuant to the provisions of RA No. 337,
as amended.
DEPOSIT IN OBU – shall mean funds in foreign currencies which are accepted
and held by an OBU or Foreign currency Deposit Unit in the regular course
of business, with the obligation to return an equivalent amount to the
owner thereof, with or without interest.

MIND BOGGLERS – RESIDENT ALIEN?
ANSWER DESCRIPTION

1. A British computer expert was hired by a Philipppine
corporation to assist in its computer system installation for which
he had to stay in the Philippines for 6 months.
2. A British cultural performer was engaged to perform in the
Philippines for two weeks after which he returned to his country.
3. An alien owns shares of stock in the Philippines. Is he
considered NRA-ETB in the Philippines?
4. An alien temporarily serves as executive manager of an
airline in Manila. Is he considered NRA-ETB in the Philippines?

MIND BOGGLERS – RESIDENT ALIEN? (CONT’D)
ANSWER DESCRIPTION

5. A resident alien left the Philippines and abandoned his
residency thereof without any intention of returning. May he
still be considered a resident alien?
6. A resident alien left the Philippines with a re-entry permit. Is
he still a resident alient?
7. A non-resident citizen went to Manila under the Balikbayan
Program. Does his return to Manila interrupt his residence
abroad?

SOURCES OF INCOME
Source of income is not a place but the property, activity
or service that produced the income. In the case
ofincome derived from labor, it is the place where the
labor is performed; in the case of income derived from
the use of capital, it is the place where capital is
employed; and in the case of profits from the sale or
exchange of capital assets, it is the place where the sale
or transaction occurs.

RULES TO BE CONSIDERED WHETHER THE INCOME OF THE
INDIVIDUAL IS TAXABLE

It is important to know the source of income of an individual taxpayer
– whether from within the Philippines or without – because not all
individual taxpayers are taxed on all their income. The following
rules apply:
1. Resident citizens are taxable on all income derived from sources
within and without.
2. Non-resident citizens and alien individuals – resident and non-
resident – are taxable on income derived from sources within the
Philippines. An oveseas contract worker is taxable only on his
income from sources within.

RULES TO BE CONSIDERED WHETHER THE INCOME OF THE INDIVIDUAL IS
TAXABLE

Source of Income
Individual
Within the Phil. Without the Phil.
1. Resident Citizen √ √
2. Non-Resident Citizen √
3. Resident Alien √
4. Non-Resident Alien √

CATEGORIES OF INCOME AND TAX RATES
Categories of Income Tax Rate
Compensation income. All remuneration for services Taxed at graduated
performed by an employee for his employerr under an rates from 5% to 32%
employer-employee relationship, unless specifically (revised Section 24(A)
excluded by the Code. per RA 9504)

Business Income – it arises from self-employment of Taxed at graduated
practice of profession. This shall not include income rates from 5% to 32%
from performance of services by the taxpayer as an (revised Section 24(A)
employer. per RA 9504)

TAX TABLE FOR INDIVIDUALS

If T a x a b le In c o m e is : T a x D u e is : If T a x a b le In c o m e is : T a x D u e is :

N o t o v e r P 1 0 ,0 0 0 5%

O v e r P 1 0 ,0 0 0 b u t n o t P 5 0 0 + 1 0 % o f th e O v e r P 1 4 0 ,0 0 0 b u t n o t P 2 2 ,5 0 0 + 2 5 % o f th e

o v e r P 3 0 ,0 0 0 e x c e s s o v e r P 1 0 ,0 0 0 o v e r P 2 5 0 ,0 0 0 e x c e s s o v e r P 1 4 0 ,0 0 0
O v e r P 3 0 ,0 0 0 b u t n o t P 2 ,5 0 0 + 1 5 % o f th e O v e r P 2 5 0 ,0 0 0 b u t n o t P 5 0 ,0 0 0 + 3 0 % o f th e

o v e r P 7 0 ,0 0 0 e x c e s s o v e r P 3 0 ,0 0 0 o v e r P 5 0 0 ,0 0 0 e x c e s s o v e r P 2 5 0 ,0 0 0
O v e r P 7 0 ,0 0 0 b u t n o t P 8 ,5 0 0 + 2 0 % o f th e P 1 2 5 ,0 0 0 + 3 4 % o f th e
O v e r 5 0 0 ,0 0 0
o v e r P 1 4 0 ,0 0 0 e x c e s s o v e r P 7 0 ,0 0 0 e x c e s s o v e r P 5 0 0 ,0 0 0

end

ALLOWABLE DEDUCTIONS
Allowable deductions are items or amounts, which the law allows to be
deducted from gross income in order to arrive at the taxable income.
1. From compensation income
a. Basic personal and/or additional exemptions; and
b. Premium payments on health and/or hospitalization insurance.

ALLOWABLE DEDUCTIONS (CONT’D)
2. From business income
a. Basic personal and/or additional exemptions; and
b. Premium payments on health and/or hospitalization insurance.
c. Itemized deductions under the Tax Code (Items A-J, Section 34); and
d. Optional standard deduction. In place of the itemized deductins, the
individual taxpayer may opt for the optional standard deduction (OSD)
not to exceed 40% (before RA 9504, OSD was 10% only) of his gross
sales or gross receipts, as the case may be.

PERSONAL EXEMPTIONS
Personal Exemptions are arbitrary amounts allowed as deductions from gross
income of the individual taxpayer from compensation, business (self-
employment) or practice of profession. Personal exemptions in a sense
represent the pesonal, living or family expenses of the taxpayer.

Kinds of Personal Exemptions
1. Basic personal exemption
2. Additional exemption. This exemption is further alloed to the taxpayer by
reason of his qualified dependent children.

PERSONAL EXEMPTIONS (CONT’D)
 Republic Act 9504, which amended Republic Act 8424 (NIRC) was signed
into law on June 17, 2008. The law allows for a basic personal exemption
of FIFTY THOUSAND PESOS (P50,000) for each individual taxpayer
regadless of status. In the case of married individuals where only one of
the spouses is derivng gross income, only such spouse shall be allowed the
personal exemption.

ADDITIONAL EXEMPTION
TWENTY-FIVE THOUSAND PESOS (P25,000) shall be allowed an additional exemption for each
dependent child not exceeding four (4) children. The additional exemption for
dependents shall be claimed by only one of the spouses in the case of married individuals.

A dependent means a legitimate, illegitimate or legally adopted child chiefly dependent upon
and living with the taxpayer if such dependent is not more than 21 years of age, unmarried
and not gainfully employed or if such dependent, regardless of age, is incapable of self-
support because of meantl or physical defect.

In the case of legally separated spouses, additional exemptions may be claimed only by the
spouse who has custody of the child or children. The total amount of additional
exemptions that may be claimed by both shall not exceed the maximum four (4) children.

The husband shall be deemed the proper claimant of the additional exemption unless he
waives his right in favor of his wife. But if the spouse of the employee is unemployed or is
a non-resident citizen deriving income from foreign sources, the employed spouse within
the Philippines shall be automaticaly entitled to claim the additional exemptions.

In the case of married individuals where only one of the spouses is derivng gross income, only
such spouse shall be allowed the basic and additional exemptions.

RULES ON CHANGE OF STATUS
1. If the employee should have additional dependents during the taxable
year, he may claim the corresponding additional exemption in full for such
year.
2. If the taxpayer dies during the taxable year, his death shall not affect the
amount of personal and additional exemptions his estate may claim. It is
as if he died at the end of such year.
3. If the spouse dies or any of the dependent dies or if any such dependent
marries, becomes twenty-one years of age, or gets gainfully employed
during the taxable year, the taxpayer may still claim the same exemtpion
as if the change occurred at the end of the year.

HEAD OF THE FAMILY
- Is an individual who actually supports and maintains in one household one
or more individuals, who are closely connected with him by blood
relationship, relationship by mariage, or by adoption, and whose right to
exercise family control and provide for these dependent individuals is
based upon some moral or legal obligation.

- Head of family means an unmarried or legally searated man or woman
with:
1. one or both parents, or
2. One or more brothers or sisters whether of the whole or half blood, or
3. One or more legitimate or illegitimate, recognized natural or legally
adopted children
Who meet the following qualifications:

HEAD OF THE FAMILY (CONT’D)
Parent/s Brother/s or Child/ ren
Sister/s
a. Living with the taxpayer √ √ √
b. Depending upon the taxpayer
√ √ √
for chief support
c. Not more than 21 years old √ √
d. Unmarried √ √
e. Not gainfully employed √ √
g. Mentally or physically defective √ √
regardless of age

HEAD OF THE FAMILY (CONT’D)
Living with the person giving support does not necessarily mean actual and
physical dwelling together at all times and under all circumstances. Thus,
the the additional exemption applies even if a child or other dependent is
away at school or on a visit. If, however, without necessity the dependent
continuously makes his home elsewhere, his benefactor is not the head of
a family irrespective of the question of support.

Chief support means principal or main support (such as paying for the rent
and spending for the food of the dependent). It is more than one half
(50%) of the support required by the dependent.

BASIC AND PERSONAL EXEMPTION RATE BEFORE JULY 6, 2008

CIVIL STATUS AMOUNT
For single individuals or married individual P 20,000
judicialy decreed as legally separated with
no qualified dependent
For head of the family 25,000
For each married individuals 32,000
Additional exemption for each dependent child 8,000
not exceeding four (4) children

TRANSITORY BASIC PERSONAL AND ADDITIONAL EXEMPTIONS
The implementing Revenue Regulations 10-2008 was made effective on July 6,
2008 so the basic personal and additional exemptions for calendar year
2008 shall be as follows:

Civil status Jan. 1 to July 5, July 6 to Dec. 2008
2008 31, 2008 Total
Basic Personal Exemption
Single P 10,000 P 25,000 P 35,000
Head of the Family 12,500 25,000 37,500
Married 16,000 25,000 41,000
Additional Exemption for Every Qualified
Dependent Child 4,000 12,500 16,500

INDIVIDUAL TAXPAYERS ALLOWED PERSONAL EXEMPTIONS

1. Citizens
2. Resident Alien
3. Non-Resident Alien
4. Estate and trusts, which are, for
purposes of personal exemptions,
treated as single individual.

PREMIUM PAYMENT ON HEALTH AND/OR HOSPITALIZATION INSURANCE

The following conditions must be met:
1. The insurance shall be taken by the individual taxpayer himself for his
family;
2. The amount being claimed shall not exceed P2,400 a year or P200 a month
per family;
3. The family has gross income of P250,000 or less for the taxable year.

Total family income includes primary income and other income from sources
received by all members of the nuclear family, ie. Father, mother,
unmarried children living together as one household, or a single parent
with children. A single person living alone is considered as a nuclear
family. For married taxpayers, only the spouse entitled to claim for
additional exemption is allowed this deduction.

TAXABLE INCOME AND TAX DUE
Taxable Income is defined as the pertinent items of gross income 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. The
taxable income is the amount or tax base upon which tax rate is applied to
arrive at the tax due.

1. Net Compensation Income – the compensation income arrived at after
subtracting from gross compensation income derived by resident citizens
or resident aliens, basic personal and additional exemptions; and premium
payments, if any, on health and hospitalization insurance under certain
conditions.

TAXABLE INCOME AND TAX DUE (CONT’D)
For resident citizen and resident alien earning purely compensation income:
Gross compensation income xxx
Less: Exemptions and Premium Payment
Basic Personal Exemption xxx
Add: Additional Exemptions xxx
Total Exemptions xxx
Add: Premium Paid on
Health and/or
Hospitalization Ins. xxx
Total Exemptions and Premium Payment xxx
Net Compensation Income (Taxable Compensation Income)
xxx

Tax Due (Sec. 24(A)) xxx

2. Gross compensation income. The gross compensation income derived by
aliens including Filipinos employed by regional and area headquarters and
regional operating headquarters of multinational companies, by offshore
banking units, or by foreign petroleum service contractors and sub-
contractors.

For non-resident alien employed by such firms earning purely
compensation income:

Gross compensation income xxx
Multiply by tax rate 15%
Tax Due xxx

3. Net Income. The income arrived at after subtractng from the gross
income (from business or professional including compensation income) of
a citizen, resident alien, and non-resident alien if the latter is engaged in
trade or business in the Philippines the deductions of the taxpayer,
including the basic personal and additional exemptions, if any.

For citizen, resident alien and non-resident alien engaged in trade or business
in the Philippines:
a. Earning purely business or professional income
Gross Business income xxx
Less: Allowable Deductions
Itemized Deductions or 40% OSD xxx
Add: Additional Exemption xxx
Premium Paid on Health and/or
Hospitalization Insurance xxx
Total Allowable Deductions xxx
Net Income Subject to Tax xxx

b. Earning both business/professional and compensation income
Gross Business income xxx
Gross Compensation Income xxx
Total Gross Income xxx
Less: Allowable Deductions
Itemized Deductions or 40% OSD xxx
Add: Additional Exemption xxx
Premium Paid on Health and/or
Hospitalization Insurance xxx
Total Allowable Deductions xxx
Net Income Subject to Tax xxx

4. Entire or Gross Income. The entire or gross income (from business or
profession including compensation income) without any deduction with
respect to non-resident aliens not engaged in trade or business in the
Philippines.

For non-resident alien not engaged in trade or business (NRANETB) in the
Philippines earning business or professional income, compensation
income or combination of both:

Gross income xxx
Multiply by final tax rate 25%
Tax Due xxx

NOTES IN THE COMPUTATION
1. For married individuals, the husband and wife shall compute separately
the tax due on their respective taxable income. If any income cannot be
definitely attributed to or identified as income exclusively earned or
realized by either of the spouses, the same shall be divided equally
btween the spouses for the purpose of determining their respective
taxable income.
2. In computing for the taxable income, fraction of a pesos is disregarded.
For the tax due, a fraction amounting to fifty centavos or more is rounded
off to a pesos while a fractiion amounting to less than fifty centavos is
disregarded.
3. Creditable withholding tax withheld from income and/or tax credit is
deducted from the tax due; penalties, if any, shall be added to the tax due.

ILLUSTRATIVE PROBLEM 1
Liza, a single taxpayer earned a basic compensation income of P224,010.60 in
year 2009. Compute her tax due as per records for year 2009 her employer
had already withheld and remitted a tax in the amount of P15,725.85.

Guide in computation:
Step 1. Identify the taxpaying party or “entity” to which the tax computation
formula applies.
Taxpaying party : Liza (natural person)
Civil Status : Single

ILLUSTRATIVE PROBLEM 1 (CONT’D)
Step 2. Determine the taxpayer’s “gross income”.
GROSS INCOME: P224,010.60
Step 3. Determine the expenses and certain other items that can be
“deducted” in computing the taxpayer’s “taxable income”.
PERSONAL EXEMPTION: P50,000.00
OTHER DEDUCCTIONS?
HEALTH/HOSPITALIZATION INSURANCE:
2,400.00
TOTAL EXEMPTIONS P52,400.00
TAXABLE INCOME
GROSS INCOME P224,010.60
LESS: TOTAL EXEMPTIONS 52,400.00
TAXABLE INCOME P171,610.60
NOTE: APPLY THE RULES P171,611.00

Step 4. Apply appropriate “tax rate” to the taxpayer’s taxable income to find
the “tax due”.

FOR INDIVIDUAL TAXPAYER:
USE THE NIRC(Sec. 24(A))
TAX DUE
FIRST P140,000 P22,500.00
EXCESS OVER P140,000
P31,611 X 25% 7,902.75
TOTAL TAX DUE P30,402.75
APPLY THE RULE (ADD P1) P30,403.00
LESS: TAX WITHHELD 15,725.85
AMOUNT STILL DUE P14,677.15

Step 5. Subtract any applicable “tax credits/payments” from the taxpayer’s
tax due in finding the “tax payable”.

TAX DUE P31,003.00
AMOUNT STILL PAYABLE P15,276.65

Step 6. Increase the tax by “penalties and interests” to obtain the “total
amount payable”.

NOTE: NOT APPLICABLE IF THE AMOUNT DUE IS TO BE PAID ON OR BEFORE
APRIL 15 OR JULY 15.

GROSS INCOME P224,010.60
LESS: TOTAL EXEMPTIONS 52,400.00
NOTE: APPLY THE RULES P174,010.00
TAX DUE
FIRST P140,000 P22,500.00
EXCESS OVER P140,000
P34,010 X 25% 8,502.50
TOTAL TAX DUE P31,002.50
APPLY THE RULE (ADD P1) P31,003.00
AMOUNT STILL DUE P15,276.65

ILLUSTRATIVE PROBLEM 2 (ACTIVITY)
Ronaldo, married, earning a pure compensation income with three (3)
qualified dependent has a gross income of P275,000. His wife is a full-time
housewife. During the year, his employer withheld from his income the
amount of P14,725.50. Compute for the tax still payable.

ILLUSTRATIVE PROBLEM 2 (SOLUTION)
Taxpayer : Ronaldo (individual, married)
Applicable Tax: NIRC Sec. 24(A)
Gross Income: P275,000
Less: Personal/Additional
Exemptions
Personal P50,000
Basic 75,000 125,000
Taxable Income P150,000
Tax Due:
First P140,000 P22,500.00
Excess P10,000 x 25% 2,500.00
Tax Due P25,000.00
Less: Tax withheld 14,725.50
Amount of Tax Payable P 10,274.50

Sam, a non-resident alien, employed by China Bank, an OBU has a gross
compensation of P750,000. How much is his tax payable assuming his
employer withheld from him a tax amounting to P90,000?
Tax Computation
Taxpayer : Sam (employed by OBU)
Applicable Tax Rate: NIRC for NRANETB (15%)
Gross Compensation Income P750,000
X Tax Rate 15%
Tax Due P112,500
Less: Tax withheld 90,000
Tax still due P 22,500

Melvin, a resident alien, employed by China Bank, an OBU has a gross
compensation of P750,000. He is married with three qualified dependents.
How much is his tax payable assuming his employer withheld from him a
tax amounting to P90,000?

ILLUSTRATIVE PROBLEM 4 (SOLUTION)
Tax Computation
Taxpayer : Melvin (employed by OBU)
Applicable Tax Rate: NIRC for Resident Alien
Gross Compensation Income P750,000
Less: Personal and Basic Exemptions
Personal P 50,000
Additional 75,000 125,000
Taxable Income P625,000
125,000
40,000
Tax Due P165,000
Less: Tax Withheld 90,000
Amount Still Payable P 75,000

Edward, a non-resident alien not engaged in trade or business in the
Philippines earns an income of P325,000. How much is his taxable income
based from his income?
Taxpayer : Edward (NRANETB)
Applicable Tax: 25%

Computation of Tax
Gross Income P325,000
X rate of tax 25%
Tax Due P 81,250

Marlon, a businessman, has a gross income of P782,925 with allowable
itemized deductions of P485,920. For the last three quarters of the year,
he remitted tax in the amount of P20,000. Compute his tax due assuming
there are four qualified dependent children.
Taxpayer : Individual (self-employed)
Applicable Tax: NIRC Sec. 24 (A)
Tax Computation
Gross income P782,925.00
Less: Allowable Dedeductions
Itemized Deductions P485,920.00
Personal and Basic 150,000.00
Total Deductions 635,920.00
Taxable Income P 147,005.00

Taxable Income P 147,005.00

Tax Due
For the 1st P140,000 P 22,500.00
Excess of P7,005 x 25% 1,751.25
Total Tax Due P 24,251.25
APPLY THE RULE P 24,251.00
Less: Tax remitted 20,000.00
Amount of tax payable P 4,251.00

OPTIONAL STANDARD DEDUCTIONS
Tax Computation
Gross income P782,925.00
Less: Allowable Dedeductions
OSD (40%) P 313,170.00
Personal and Basic 150,000.00
Total Deductions 463,170.00
Taxable Income P319,755.00

Tax Due:
First P250,000 P50,000.00
Excess of P69,755 x 30% 22,321.60
Tax Due P72,321.60
APPLY THE RULE P72,322.00
Less: Tax Paid 20,000.00
AMOUNT OF TAX STILL DUE P52,322.00

Categories of Income Tax Rate
3. PASSIVE INCOME – these are subject to separate and final 5% to 25%
tax. These are taxed at fixed rates ranging from 5% to 25%.
Examples of passive income are interests, royalties, prizes,
winnings and dividends.
FINAL TAX imposed on income or gain shall no longer be
included as taxable income subject to the graduated rates.
The final tax is imposed witout any deduction and is withheld
at source. The amount received by passive income earner is
net of the final tax. The final tax on passive income is remitted
by the payor who serves as the withholding agent to the BIR.

4. CAPITAL GAINS FROM SALE OF SHARES OF STOCK, NOT TRADED THROUGH
THE LOCAL STOCK EXCHANGE. Taxed at 5% and 10% final taxes on a per
transaction basis.

On the Net Capital Gains:
Not over P100,000 5%
Amount in Excess of P100,000 10%
Illustration: For resident citizen
Selling Price P160,000
Less: Cost 40,000
Capital Gains P120,000
On P100,000 x 5% P 5,000
On P20,000 x 10% 2,000
Capital Gains Tax P 7,000

5. Capital gains from sale of real propety. Taxed at 6% final tax on the gross
selling price or current fair market value at the time of sale, whichever is
higher.

Selling Price P2,500,000
Tax Rate 6%
Final Tax P 150,000

6. Fringe Benefits. Means any good, service, or other benefit furnished or
granted by an employer in cash or in kind in addition to basic salaries, to an
individual employee (except rank-and-file employee) under an employer-
employee relationship.

Tax Rate: 32% of gross-up monetary value

Illustration:
Monetary Value of the FB P198,000
Divide by 68%
Grossed-up Monetary Value P291,176
Mulltiply by 32%
Fringe Benefit Tax P 96,088

DECLARATION OF INCOME TAX FOR INDIVIDUALS
Business income and professionals

Installment Date
First April 15
Second August 15
Third November 15
Fourth April 15

INDIVIDUALS EXEMPT FROM INCOME TAX
A. Non-resident citizen who:
1. physically presence abroad and has
intention to reside in other country
2. leaves the Phils. during the taxable year
to reside abroad as immigrant or
employment on permanent basis
3. employed abroad and derives income
therein and requires him to be there
most of the time.
4. a non-resident citizen who arrives during
the taxable year, however, will reside
permanently in the Phils. will still be
considered non-resident citizen on that
particular taxable year with respect to
his income derived from abroad.

INDIVIDUALS EXEMPT FROM INCOME TAX
B. Overseas Contract Worker, Including Overseas Seaman
Exempted from income derived from abroad, however, for income sourced
from the Philippines, it is already taxable.

B. Barangay Micro Business Enterprises (RA 9178 or BMBE Law)

C. Expanded Senior Citizen Act of 2010 (RA 9504)

TRUE OR FALSE (PAGE 2-29)

1 TRUE 11 TRUE 21 TRUE
2 TRUE 12 FALSE 22 TRUE
4 FALSE 14 FALSE 24 FALSE
5 TRUE 15 FALSE 25 FALSE
8 FALSE 18 FALSE 28 TRUE
9 FALSE 19 TRUE 29 FALSE
10 TRUE 20 TRUE 30 FALSE

TRUE OR FALSE PAGE 2-31

6 TRUE 16 TRUE
7 TRUE 17 TRUE
8 TRUE 18 FALSE
9 FALSE 19 TRUE
10 TRUE 20 TRUE

MULTIPLE CHOICE - THEORY (PAGE 2-33)

1 B 11 C 21 A 31 A
2 C 12 B 22 D 32 C
3 A 13 D 23 D 33 B
4 B 14 C 24 C 34 A
5 D 15 C 25 D
6 D 16 D 26 A
7 B 17 D 27 C
8 A 18 C 28 D
9 A 19 D 29 B
10 A 20 D 30 D

MULTIPLE CHOICE - CLASSIFICATION OF INDIVIDUAL TAXPAYERS
(PAGE 2-40)

1 B 6 A OR B
2 C 7 A
3 B 8 D
4 B 9 D
5 B 10 C

BASIC PERSONAL AND ADDITIONAL EXEMPTIONS (2-41)
BASIC ADDITIONAL BASIC ADDITIONAL
1 50,000 50,000 14 50,000 -
2 50,000 - 15 50,000 -
3 - - 16 50,000 25,000
4 50,000 - 17 50,000 75,000
5 50,000 - 18 50,000 -
6 50,000 75,000 19 50,000 50,000
7 50,000 25,000 20 50,000 100,000
8 50,000 25,000 21 50,000 -
9 50,000 25,000 22 50,000 -
10 50,000 25,000 23 50,000 -
11 50,000 - 24 50,000 50,000
12 50,000 75,000 25 50,000 -
13 50,000 100,000

ESSAY (PAGE 2-44)
1. The husband should be the one to take the health insurance for his family.
For married taxpayers, the spouse entitled to claim for additional
exemptions, who is generally the husband, is allowed the health and/or
hospitalization premium payment deduction.
Assuming that it is the husband who take the health insurance, he is still
not qualified as because the family gross income which is P780,000
(wife P180,000, husband P600,000) far exceeded the P250,000 limit.
2. Sela’s annual gross income of P72,000 qualifies her for the premium
payment deduction she being the sole bread winner. But she can only
deduct the maximum amount of P2,400.00.
3. The hospitalization insurance was not intended for Jamie’s family, hence it
cannot be deducted. Assuming the amount is intended for her family, she
could only claim for P2,200 premium payment.

PASSIVE INCOME (PAGE 2-45)

TAX RATE TAX DUE TAX RATE TAX DUE
1 20% 30,000 6 Sec 24(A) 5% 400
2 Exempt 7 20% 1M
3 Exempt 8 10% 2,000
4 10% 20,000 9 20% 15,000
5 20% 10,000 10 Exempt

PROBLEMS (PAGE 2-46)

1 50,000 11 91,053 21 37,500 31 50,000
2 25,000 12 426,250 22 1,132,500 32 2,226,013
3 375,000 13 75,000 23 327,400 33 106,445
4 50,000 14 148,000 24 8,800 34 -
5 75,000 15 24,500 25 2,500,000 35 556,503
6 525,000 16 - 26 720,000
7 87,500 17 - 27 150,000
8 133,000 18 - 28 -
9 167,500 19 450,000 29 1,630,000
10 91,053 20 67,500 30 486,600

COMPREHENSIVE PROBLEM (PAGE 2-49)

1 100,000 6 3,175,000
2 - 7 365,000
3 - 8 981,000
4 20,000 9 415,000
5 84,500

MC - THEORY (PAGE 2-50)

1 C
2 B
3 C
4 B

THANK YOU VERY
MUCH, MERRY
CHRISTMAS

Blt 134 chapter 2

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