 INCOME TAXATION
 Under TRAIN Law
 Income
 Amount of money coming to a
person or a corporation within a
specified time, whether as payment
for services , interest or profit from
investment
 Profits or gains.
 Not a mere return of capital.
 Elements of Imposition of
Income Tax
 Gain or profit
 It must be realized or received,
actually or constructively
 Not exempted by law or treaty from
income tax
 Income Tax Formula for Individuals
Taxable Income
Gross Income
LESS: Deductions
 Taxable Income – refers to the
pertinent items of gross income
specified in the Code, less
deductions, if any, authorized for
such types of income by the Code or
other special laws.
 Income Tax Rates on Individual
Citizen and Individual Resident Alien
 Individual Income Taxation
 Types of Income
• Income from Employment
(employee)
• Income from practice of a
profession
(freelancers/practioners)
• Income from employment and
practice of a profession (mixed
income earners)
 INDIVIDUAL INCOME TAX
 Starting January 1, 2018,
compensation income earners, self-
employed and professional
taxpayers (SEPs) whose annual
taxable incomes are Php250,000 or
less ARE EXEMPT from the personal
income tax (PIT).
 The 13th month pay and other
benefits amounting to Php90,000
are likewise tax-exempt.
 Taxable income: individuals
earning purely compensation
income
GROSS COMPENSATION INCOME
LESS MANDATORY CONTRIBUTIONS
and/or BENEFITS (deductions)
(13th month pay and other benefits like de
minimis benefits and employee’s share in
the SSS, GSIS, PHIC, PAG-IBIG
contributions and union dues. (R.R. 8-2018)
 Gross
 "Gross" income of any kind refers to
the amount you receive before any
deductions or taxes are taken out.
 Income Taxation
 Taxable Income
 Tax Due

Gross Income
 ALL INCOME derived from whatever
source.
 This includes, but is not limited to
the following:
 Compensation for services in
whatever form paid including but
not limited to fees , salaries, wages,
commissions and similar items;
 Gross income derived from the
conduct of trade or business or the
exercise of profession;
  Gross income
3. Gains derived from dealings in property
4. Interests;
5. Rents;
6. Royalties;
7. Dividends;
8. Annuities;
8. Prizes and winnings;
9. Pensions; and
10. Partner’s distributive share from the net
income the general professional
partnership
 Tax treatment of the following
taxpayers:
• Individuals earning purely
compensation income;
• Individuals earning income from
self-employment or practice of
profession; and
• Mixed income earners or
individuals who earn income from
compensation and self-
employment or practice of
profession.
 EXCLUSIONS (Exempt from
Income Tax)
 Proceeds of Life Insurance payable
upon the death of the insured.
However, it is taxable if the insured
outlives the policy.
 Amount received by insured as
return of premium
 Gifts, bequests (but the income
from such property shall be
included in gross income)
 EXCLUSIONS (Exempt from
Income Tax)
7. Retirement benefits, pensions, etc.
8. Separation pay, caused by death,
sickness or other disability beyond the
control of employee
9. Social security benefits, retirement
gratuities, pensions and similar benefits
from foreign government agencies
10. SSS benefits
11. GSIS benefits
 EXCLUSIONS (Exempt from
Income Tax)
12. Income earned by foreign governments in
the Philippines from deposits/investments
13. Income earned by the Phil. Government
or its Political subdivisions (like public
utilities)
 EXCLUSIONS (Exempt from
Income Tax)
14. Prizes and Awards -given to religious,
charitable, scientific, educational,
artistic, literary, or civic achievement,
provided that:
a. the recipient did not join the
contest
b. he is not required to render
substantial future service
 EXCLUSIONS (Exempt from
Income Tax)
15. Prizes and awards granted to athletes
in –
 Local and international
sports competitions,
 In the Philippines or abroad,
 Sanctioned by their national
sports associations
 And the sport association
must be recognized by the
Philippine Olympic
Committee

 EXCLUSIONS (Exempt from
Income Tax)
16. 13th month pay, Christmas bonus,
productivity incentives, and other
benefits (de Minimis Benefits.
(under the TRAIN Law, the
amount of tax-exempt 13th month pay
and other benefits is increased to
P90,000.)
17. GSIS, SSS, Medicare and other
contributions
18. Gains from sale of bonds, debentures
or other certificate of indebtedness with
maturities of more than 5 years
19. Gains from redemption of shares in
mutual funds
 EXCLUSIONS (Exempt from
Income Tax)
20. Interest received by a non-resident
individual or a non-resident corporation
from deposits with depository banks under
the expanded FCDU
21. Intercompany dividends
(resident/domestic corps. from domestic
corps)
 DE MINIMIS BENEFITS as of January
1, 2018, under the train tax law
 De minimis Benefits
 de minimis
 facilities or privileges furnished or
offered by an employer to his
employees that are of relatively
small value and are offered or
furnished by the employer merely as
a means of promoting the health,
goodwill, contentment, or efficiency
of his employees. 
 Individuals earning purely
compensation income: taxed under
graduated rates
Compensation income
 Is all remuneration for services
performed by an employee under an
employer-employee relationship.
 This includes salaries, wages,
emoluments, and honoraria,
allowances, commissions, director’s
fees where the director is also an
employee (R.R. 8-2018)
 Income from employment is subject
to withholding tax
 Revenue regulation mandates that
on a certain level of periodic
employment of income of the
employee, the employer must
deduct from the employment
income a certain amount of income
tax and remit such amount to the
BIR.
 Individuals earning purely
compensation income: BIR FORM
2316
BIR FORM 2316
CERTIFICATE OF COMPENSATION
PAYMENT/TAX WITHHELD
 Taxable income: individuals
earning purely compensation
income
GROSS COMPENSATION INCOME
LESS MANDATORY
CONTRIBUTIONS/NON-TAXABLE
INCOME/BENEFITS (deductions)
(13th month pay and other benefits like de
minimis benefits and employee’s share in
the SSS, GSIS, PHIC, PAG-IBIG
contributions and union dues. (R.R. 8-2018)
 THE GRADUATED INCOME TAX
RATES
 THE GRADUATED INCOME TAX
RATES
 Income tax rates on individual
citizen and individual resident alien
of the Philippines
 What are Mandatory
Contributions?
employee’s share in the SSS, GSIS, PHIC,
PAG-IBIG contributions and union dues.
(R.R. 8-2018)
 EXAMPLE 1:
 For a CALL CENTER AGENT who
receives a monthly salary of P21,000
with other benefits in the amount of
P21,000.00 with mandatory annual
deductions P15,166.00 consisting of
SSS, Philhealth, and PAG-IBIG
contributions, compute the income tax
due:
 EXAMPLE 2:
For a CALL CENTER AGENT who receives
a monthly salary of P21,000 with other
benefits in the amount of P21,000.00 and
with mandatory annual deductions
P15,166.00 consisting of SSS, Philhealth,
and PAG-IBIG contributions, the income tax
is computed as:
 TAX DUE : Php 0.00
Income Tax Rate:
Not over P250,000 = 0%
 EXAMPLE 2:
 For a TEACHER who receives a
monthly salary of Php26,494.00
with13th Month Pay and Other
Benefits in an amount of Php
26,494.00, annual mandatory
deductions of Php34,185.00
consisting of GSIS, Philhealth,
and PAGIBIG contributions, the
income tax is computed as:
 EXAMPLE 3:
For a TEACHER who receives a
monthly salary of Php26,494.00
with13th Month Pay and Other
Benefits in an amount of Php
26,494.00, annual mandatory
deductions of Php34,185.00
consisting of GSIS, Philhealth, and
PAGIBIG contributions, the income
tax is computed as:
 Solution
Over Php250,000 but not over
P400,000 = 20% of excess over
Php250,000
TAX DUE : 33,743 x20%
= Php6,748.60
 Example 3
 For a government employee who
receives an annual salary of Php
885,732.00 with 13th month pay and other
benefits in the amount of Php73,811.00
and with monthly mandatory deductions
of Php 7,642.00 consisting of GSIS,
Philhealth, and PAGIBIG contributions,
the income tax is computed as
 Example 1.
 An employee receiving daily
compensation in the amount of
P2,500.00, net of mandatory
contributions.
 Example 2:
 An employee receiving weekly
compensation in the amount of
P9,500.00, net of mandatory
contributions.
 Example 3:
 An employee receiving semi-
monthly compensation in the
amount of P15,500.00, net of
mandatory contributions.
 Example 4:
 An employee receiving monthly
compensation in the amount of
P170,500.00, net of mandatory
contributions.
 What is a Fringe Benefit?
 Refer to goods, services, or other
benefits furnished or granted by an
employer in cash or in kind, in
addition to basic salaries, to
managerial or supervisory
employees.
 Who are managers? Supervisors?
Rank and File?
 “Managerial employees” those
who are given powers or
prerogatives to lay down and
execute management policies
and/or to hire, transfer, suspend, lay-
off, recall, discharge, assign or
discipline employees.
 supervisory position.
 Who are managers? Supervisors?
Rank and File?
 “Supervisory employees” are those
who effectively recommend such
managerial actions if the exercise of
such authority is not merely
routinary or clerical in nature but
requires the use of independent
judgment.
 “Rank and file employees” all
employees who are holding neither
managerial or supervisory position.
e income
 What are Fringe Benefits?
 Expenses for foreign travel
 Holiday and vacation expenses
 Educational assistance to the
employee or his dependents
 Life or health insurance and other
non-life insurance premiums or
similar amounts in excess of what
the law allows.
 Housing
 Expense account
 Vehicle of any kind
 Household personnel
 What are Fringe Benefits? (cont.)
 Interest on loan at less than market
fare (12% benchmark) to the extent
of the market rate and actual rate
granted;
 Membership fees, dues and other
expenses borne by the employer for
the employee in social and athletic
clubs or other similar organizations
 Fringe Benefit Tax is NOT imposed
on the following:
 Rank and file employees
 NRA not engaged in trade/business
 Filipino counterpart of the NRA
under Sec 25 NIRC who chooses to
be taxed at the rate of 15% on the
gross.
 Who should pay FBT?
 Employer
 The FBT is collected by the
employer even if the employer is a
tax-exempt corporation, or an
instrumentality of the government.
 FBT is not an additional tax on the
employer
 He can claim the FBT as a
deductible expense from his gross
income.
 How to compute
 FRINGE BENEFITS
 FORMULA FOR FBT
 Grossed-up Monetary Value = Actual
Monetary Value/65%(or applicable
rate):
GMV =AMV/65%
 Fringe Benefit Tax = Grossed-up
Monetary Value x 35% (or applicable
FBT rate)
FBT = GMV X RATE
 a. The grossed-up monetary value
 The grossed-up monetary value
consists of the net amount of
money/monetary property value
received and the amount of fringe
benefit tax due and paid by the
employer on the employee's behalf.
 b. Applicable tax rate
 In general – The Fringe Benefits Tax
is increased to 35% effective January
1, 2018
 Example 1
 Digital Marketing Inc., an
advertising company granted a
Filipino branch manager employee,
in addition to his basic salaries, Php
4,000 cash per quarter for his
personal membership fees at Astro
Gym (a fitness and athletic club).
 How much is the FBT that VQA
Company should withhold and remit
to BIR per quarter?
 Answer:
 Monetary value of fringe benefit:
Php 4,000
Percentage divisor applicable: 65%
Fringe benefit tax rate:  35%
 FBT= (Monetary value of fringe
benefit/65%) x 35%
(Php 4,000/65%) x 35%
Php 6,153.84615 x 35%
Php 2,153.00
 Example 2
 Mr. Z is a Filipino Executive Vice
President of ABC Inc., a local
advertising company. Apart from his
basic salary, the company pays for
the monthly wages of Mr. Z’s driver
at P10,000.
How much is the FBT that ABC Inc. is
liable for?
 Answer :
 GMV
GMV = actual monetary value of the
fringe benefit divided by 65
percent
GMV = P10,000/65 percent
GMV = P15,384.61
 FBT
FBT = 35 percent X GMV
35 percent X P15,384.61
P5,384.61
 SEATWORK
 In addition to other fringe benefits,
Mr. E, a supervisor, availed of the car
plan of his employer, L Co. Under the
plan, 50% of the cost of the car shall
be shouldered by the company. The
car was registered in the name of
Mr. E. Assuming that the car is
valued at P2,600,000,
• How much is the grossed up monetary
value of the fringe benefit?
• How much is the fringe benefit tax?
 To recap:
 Fringe benefit given to rank and file
employee –NOT SUBJECT TO FBT
 Fringe benefit given to a supervisory
or managerial employee –SUBJECT
TO FBT
 De minimis benefit, whether given
to rank and file employee or to
supervisory or managerial
employee – NOT SUBJECT TO FBT
 PASSIVE INCOME
 FINAL INCOME TAX RATES ON
CERTAIN PASSIVE INCOME
 FINAL INCOME TAX
 The tax is withheld at source, and
what the taxpayer receive is tax-paid
income already, and the item of
income need not be included
anymore in the income tax return.
 Income tax rates on
Certain Passive Income of
Individual Citizens and
Resident Aliens
 Income tax rates on
Certain Passive Income of
Individual Citizens and
Resident Aliens
 Capital Gains Tax
 Kinds of assets:
• Capital assets, and
• Ordinary assets
 Capital asset
 are significant pieces of property
such as homes, cars, investment
properties, stocks, bonds, and
even collectibles or art. For
businesses, a capital asset is a
tangible asset with a useful life
longer than a year that is not
intended for sale in the regular
course of the business's operation.
 Ordinary assets
those that are used or connected with the
taxpayer’s trade, business , or profession.
• Stocks held by the taxpayer in trade
or inventory
• Properties for sale in the ordinary
course of business
• Any property used in business that
the taxpayer claims for depreciation
• Real property used in trade or
business
 Examples of ordinary asset
 Inventory for sale of a merchandiser;
 Real estate for sale by a real estate
dealer;
 Property of the business subject to
depreciation;
 Land on which the factory stands.
 How do we determine gain/loss
from sale of property?
The gain from the sale or other disposition
of property shall be the excess of the
amount realized therefrom over the
adjusted basis for determining the gain.
 Illustration:
Gross selling price P500,000
P500,000
Less: Cost or adjusted 350,000
850,000
Gain / (Loss) P150,000
(350,000)
 SALE OF PROPERTY WITH A
CAPITAL GAIN TAX:
 When the capital asset is:
• Shares of stock of a domestic
corporations not listed and traded
through a local stock exchange;
-15% CGT on the sale of shares of
stock
• Real property in the Philippines, if A Co.
the taxpayer is an individual; or real B Co.
property regardless of a location, if Selling price P200,000
the taxpayer is a corporation. – 6% P200,000
on the selling price or fair market Less: Cost 120,000
value of the real property, 230,000
whichever is higher, regardless of a Capital Gain P80,000
gain or loss on the sale. LOSS(P30,000)
 On real property
 “The six percent (6%) CGT
(capital gains tax) is based Capital gain tax on a per transaction
on the gross selling price or basis:
fair market value or zonal On A Co. shares:
value of the subject property, On P80,000 x 15% P12,000
whichever is higher,” the BIR
said in a statement, referring On B. Co shares
to memorandum circular 35-
2017 issued earlier. P______0
(no
 Rules on Gains and Losses from CGT, there is
Sales or Exchanges of Assets; loss)
SALE OF PROPERTY WITH A
CAPITAL GAIN TAX:  Illustration: Sales of real properties
 Capital gain tax is on a per in the Philippines held as capital
transaction basis. assets:
 Illustration: The capital assets  For example, if you’re selling a
are shares of stock of a property for a total of Php
domestic corporations not 2,400,000, then the capital gains
listed and traded in a local
tax will amount to Php 144,000.
stock exchange
On the other hand, if the current
A Co. B Co. fair market value of the property
Selling price P200,000 P200,000 amounts to Php 2,800,000 and
Cost 120,000 230,000 not Php 2,400,000, then the total
capital gains tax for the said
Compute the capital gain tax of A Co. property would then be Php
Shares.
168,000 and not Php 144,000.
Compute the capital gain tax of B Co.
 Illustration: Sales of real properties
Shares.
in the Philippines held as capital
 The capital assets are shares of assets:
stock of a domestic corporations  Capital gain is on a per
transaction basis:
not listed and traded in a local
stock exchange:
 Sale of June 5
 Fair market value
P2,500,000
Capital gain tax at 6% P following circumstances are present:
150,000
 Sale of June 6
Selling price
P1,000,000
Capital gain tax at 6% P (AAB), under an Escrow agreement
60,000
 Full or partial exemption from the
capital gain tax
 People who are selling their
properties in order to acquire or
construct a new home are
exempted from this rule, but only
if they ensure that the money will
actually go to the new property
and not elsewhere.
 Capital gain tax on principal
residence:
 There is a full or partial exemption
from the capital gain tax if the
following circumstances are present:
• The capital gain is from the sale or
disposition of a principal residence
of a natural person;
• The proceeds of the sale were used
in acquiring a new principal
residence.
• Utilization is within 18 months from
the date of sale or disposition;
• The Commissioner of Internal
Revenue is notified by the taxpayer
within 30 days from the date of sale
or disposition of his intention to
avail tax exemption;
 Capital gain tax on principal
residence:
 There is a full or partial exemption
from the capital gain tax if the
5. A deposit is made of the 6% capital gain
tax withheld by the buyer, in cash or
manager’s check, in interest bearing
account with an authorized agent bank
between the taxpayer and BIR that the
same will be released to the seller when the
proceeds of the sale shall have been utilized
as intended;
6. The taxpayer can avail the exemption
only once every 10 years.
 Illustration.
 Ace is a UST Marketing Student.
 His property is a residential home
in Maria Clara St., Sampaloc,
Manila.
 Selling price of an old principal
residence
P5,000,000
 Cost of the old principal residence
2,000,000
 Compute the CAPITAL GAINS
TAX (CGT)
• If investment of the proceeds of
the sale in the acquisition of a
new principal residence is 0
• If investment of the proceeds of
the sale in the acquisition of a
new principal residence is
P5,000,000
• If investment of the proceeds of
the sale in the acquisition of a
new principal residence is
P4,000,000
  Transactions’ Omar Erasmo G.
If investment of the proceeds of Ampongan
the sale in the acquisition of a  2018, ‘Tax Made Less Taxing’ The
new principal residence is 0 Train Supplement, Ignatius
Michael D. Ingles
 Capital gain tax if there was no
investment in new principal
residence

 P5,000,000 x 6%
P300,000
 If investment of the proceeds of the
sale in the acquisition of a new
principal residence is P5,000,000

 Capital gain tax if there was

investment in new principal
residence

 Capital gain tax

P0
 If investment of the proceeds of the
sale in the acquisition of a new
principal residence is P4,000,000

 Capital gain tax if there was

investment in new principal
residence
 Proceeds of the sale not invested:

P1,000,000
FORMULA:
Proceeds of the sale not invested: x
CGT at = CGT due
Entire proceeds of the sale
6% on the selling price

 =P1,000,000/P5,000,000xP300,0
00
 =P 60,000
 Sources:
 2018, ‘Income Tax Law and
Accounting,” Virgilio D. Reyes
 2018, ‘Taxation and Regulatory
Framework for Business