Inclusions in gross income:

1. Monetary compensation
a. Regular salary/wage /commission
b. Separation pay/retirement benefit not otherwise exempt
c. Bonuses, 13th month pay, and other benefits not exempt (meaning the excess of Php
90,000)
 Christmas Bonus
 Productivity Incentive Bonus
 Loyalty award
 Recognition/meritorious pay
d. Director’s fees
2. Non-monetary compensation
a) Fringe benefit not subject to FBT
 CBA benefits granted to rank and file employees
 Health Insurance Given to Rank and File Employees
 Dental Insurance Given to Rank and File Employees
 Family Coverage Given to Rank and File Employees
 Maternity Insurance Given to Rank and File Employees
 Gym/Yoga Classes Given to Rank and File Employees
 Childcare support Given to Rank and File Employees
 Domestic Helper Coverage Given to Rank and File Employees
 Life Insurance Given to Rank and File Employees
b) Insurance Benefits
c) Standard Vacation Policy
d) Stock Options
3. Gross income derived from the conduct of trade or business
4. Income from the exercise of a profession;
5. Income received through the practice of profession when there is not employee-employer
relationship;
6. Gains derived from dealings of real property; (if capital asset, not included as it is already
subject to final tax)
7. Gains derived from dealings of personal property;
8. Interests derived from bonds, notes, or other interest-bearing obligations; (not included
because already subject to final tax)
9. Rents;
10. Royalties; (not included because already subject to final tax)
11. Dividends received from domestic corporations and foreign corporations (cash and/or
property); (not included because already subject to final tax)
12. Annuities;
13. Prizes and winnings; (not included because already subject to final tax)
14. Pensions; and
15. Partner's distributive share from the net income of the general professional partnership.
16. Treasure found
17. Amount received by mistake
18. Cancellation of the taxpayer’s indebtedness on amount of service rendered
19. Payment of usurious interest
20. Illegal gains
21. Embezzled funds are subject to income tax
22. Tax refunds and bad debts recovered to the extent of the income benefit derived from
deduction
23. Subsidy
24. Unutilized or excess of campaign funds which is the excess of the contributions

EXCLUSIONS FROM GROSS INCOME

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I. (National Internal Revenue Code, as amended, SECTION 32 paragraph B)
1. Life Insurance proceeds paid to beneficiaries upon the death of the insured
(Not subject to tax because they are not treated as gain or profit, but rather
indemnity for injuries or sickness) (sec 32 par B (1));
2. Amount received by insured as return of premium (sec 32 par B, (2) );
3. The value of property acquired by inheritance ( sec 32 par B, (3) “Gifts, Bequests, and
Devises);
4. The value of property acquired by donation ( sec 32 par B, subpar (3) “Gifts, Bequests, and
Devises);
5. Compensation for Injuries or sickness (sec 32 par B, (4));
6. Income Exempt Under Treaty ( sec 32 par B, (5));
7. Retirement Benefits, Pensions, Gratuities, etc.-
a) Retirement benefits received under Republic Act No. 7641 and those received by
officials and employees of private firms, whether individual or corporate, in
accordance with a reasonable private benefit plan maintained by the employer;
b) Retirement Benefits received under Republic Act No. 4917;
c) Any amount received by an official or employee or by his heirs from the employer as a
consequence of separation of such official or employee from the service of the
employer because of death sickness or other physical disability or for any cause
beyond the control of the said official or employee;
d) Terminal Leave benefits;
e) Separation pay due to death, sickness, or other disability or any other cause beyond
the control of the employee such as retrenchment
f) Social security benefits (SSS and GSIS providing insurance benefits such as
sickness, maternity, disability, retirement, death and funeral and salary loan.),
retirement gratuities, pensions and other similar benefits received by resident or
nonresident citizens of the Philippines or aliens who come to reside permanently in the
Philippines from foreign government agencies and other institutions, private or public;
g) Payments of benefits due or to become due to any person residing in the Philippines
under the laws of the United States administered by the United States Veterans
Administration;
h) Foreign social security, retirement gratuities, and pensions, etc.
i) Benefits received from or enjoyed under the Social Security System in accordance
with the provisions of Republic Act No. 8282;
j) Benefits received from the GSIS under Republic Act No. 8291, including retirement
gratuity received by government officials and employees;
8. Miscellaneous Items ( sec 32, par B, (8))
a) Income Derived by Foreign Government;
(Income derived from investments in the Philippines in loans, stocks, bonds or other
domestic securities, or from interest on deposits in banks in the Philippines by (i)
foreign governments, (ii) financing institutions owned, controlled, or enjoying
refinancing from foreign governments, and (iii) international or regional financial
institutions established by foreign governments)
b) Income Derived by the Government or its Political Subdivisions;
c) Prizes and Awards (religious, charitable, scientific, educational, artistic, literary, or civic
achievements, as provided for by the NIRC);
d) Prizes and Awards in Sports Competition (ex: Olympics and Sea Games);
e) 13th Month Pay and Other Benefits such as Christmas Bonus and other productivity
bonus (limitation up to Php 90,000);

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 f) Benefits received by officials and employees not covered by Presidential decree No.
851, as amended by Memorandum Order No. 28, dated August 13, 1986;
g) GSIS, SSS, Medicare and Other Contributions; (including Union Dues)
h) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness; (5 years
or more maturity)
i) Gains from Redemption of Shares in Mutual Fund.
9. Passive Income Subject to Final Withholding Tax and Special Rates
10. De Minimis Benefits
Constitutional Exclusions
11. All revenues earned by a non-stock non-profit private educational institution used actually,
directly, and exclusively for private educational pruposes
Special Laws Exclusions
12. RA 7916 on PEZA registered enterprises given tax holidays
13. RA 6657 “Comprehensive Agrarian Reform Program” for gains arising from the transfer of
agricultural property are tax exempt for 10 years
14. RA 7653 “New Central Bank Act” – BSP being exempt from all types of taxes for 5 years
15. RA 7279 “Urban Development Housing Act of 1992” – the NHA is exempt from all fees and
charges of any kind
16. RA 8502 “Jewelry Industry Development Act of 1998” – for qualified jewelry enterprises
17. RA 9504 for the earnings of “small wage earners”

DEDUCTIONS FROM GROSS INCOME

Under the NIRC, as amended, Section 34
A. GENERAL EXPENSES, such as:
1. Ordinary and Necessary Trade, Business or Professional Expenses.-
 Reasonable allowance for salaries, wages, and other forms of compensation given
to employees;
 Reasonable allowance for travel expenses (in the pursuit of trade, profession,
business);
 Reasonable allowance for rent expenses (for purposes of trade, profession,
business);
 Reasonable allowance for entertainment, amusement and recreation expenses
during the taxable year, that are directly connected to the development,
management and operation of the trade, business or profession of the taxpayer,
or that are directly related to or in furtherance of the conduct of his or its trade,
business or exercise of a profession;
 Repair and Maintenance Expenses
 Expenses under lease agreements
 Expenses for professionals (ex: cost of supplies)
 Political Campaign Expenses
NOTE: FOR Private Educational Institutions they are allowed to choose between the two additional
deductions:
1) to deduct expenditures otherwise considered as capital outlays of depreciable assets incurred during
the taxable year for the expansion of school facilities; or

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2) to deduct allowance for depreciation thereof
B. INTERESTS PAID:
C. Taxes;
 Import Duties;
 Business License, privilege, excise and stamp taxes;
 Local Government taxes (real property taxes, franchise taxes, etc)
 Documentary Stamp Taxes
XPNS:

 Philippine income tax;

 Foreign income tax;
 Estate and donor’s tax;
 Special assessments on real property; and
 Electric energy consumption tax under BP 36
D. Losses;
E. Bad debts;
XPN:
1. Reserves for bad debts; and
2. Worthless securities

F. Depreciation;
G. Depletion of oil and gas wells and mines;
H. Charitable and other contributions;
Partly Deductible
 Donations that are not in accordance with the National Priority Plan
 Donations to NGOs when conditions not complied
 Donations to Government exclusively for public purpose
 Donations to Accredited Domestic Corporations for religious, charitable, scientific, youth
and sports development
Fully Deductible
 Donations to Government for priority projects or activities such as Health, Education,
Youth, Human Settlement, Economic Development, Culture, and Science
 Donations to foreign governments and institutions pursuant to treaties, executive
agreements, or special laws
 Donations to NGOs when conditions are complied
 Donations of prizes and awards to athletes

NOTE: Must not exceed 10% (individual) or 5% (corporation) of te taxpayer’s taxable income
before charitable contributions (whether deductible in full or subject to limitation)

I. Research and Development;

J. Pension Trusts

Deductions under special law

K. Extraordinary deductions allowed for insurance companies

L. Special deductions for proprietary educational institutions
M. Special deductions for productivity bonus and manpower training under the Productivity
Incentives Act of 1990

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N. Deductions for training expenses of qualified jewelry enterprises
O. Deductions under Adopt-a-school act;
P. Deductions under the expanded Senior Citizens Act of 2003