ALLOWABLE DEDUCTIONS FOR INDIVIDUAL TAXPAYERS

Compensation Income – for individuals earning purely compensation income, there is no allowable

deduction. However, the first P250,000 of their income is subject to 0% income tax.

Business Income – for those earning business income or income from the practice of profession, the

individual is allowed to claim itemized deductions or the optional standard deduction. If they earn

income purely from business or practice of profession, the first P250,000 of such income is

deductible from their gross sales/receipts if they opt to avail of the 8% flat rate of income tax.

Otherwise, if they avail of the graduated rates or failed to signify that they are availing of the 8% flat

rate of income tax, the first P250,000 is subject to 0% income tax therein.

Basic and Additional Personal Exemption and Premiums for Health and/or Hospitalization Insurance

has now been removed under the Republic Act No. 10963, otherwise known as the “Tax Reform for

Acceleration and Inclusion (TRAIN) Act.”

SOURCES OF INCOME FOR INDIVIDUAL TAXPAYERS

1. Compensation Income - It includes salaries, wages, emoluments and honoraria, allowances,

commissions (e.g., transportation, representation, entertainment and the like); fees

including director's fees, if the director is, at the same time, an employee of the

employer/corporation; taxable bonuses and fringe benefits except those which are subject to

the fringe benefits tax under Sec. 33 of the NIRC; taxable pensions and retirement pay; and

other income of a similar nature.

 2. Business or professional income - It likewise includes a person who engages in some art or

sport for money, as a means of livelihood, rather than as a hobby, such as athletes, artists,

bookkeeping agents, and other recipients of professional, promotional or talent fees. (RR

No. 8-2018)

3. Passive income - Specific rates of final withholding tax are provided for certain passive

incomes, such as interest from deposits, dividends, royalties, etc. However, if they are not

covered by such rate, it will form part of the taxpayer’s gross income subject to income tax.

4. Capital Gains - e arising from the sale of capital assets which may be subject to Capital Gains

Tax, for sale of real property and shares of stock not traded in a local stock exchange; or as

part of gross income subject to income tax for all other types of capital assets

Taxability

Resident citizens are taxable on their worldwide income, while all the rest (Non-resident Citizen and

Aliens [whether resident or non-resident) are taxable only on their income from sources within the

Philippines

Requisites of Income:

1. There must be gain or profit.

2. The gain must be realized or received

3. The gain must not be excluded by law or treaty from taxation