Income Tax

For
Individuals
By:

Mr. Mario M. Castro, Cpa, Mba

Tax consultant
 Individual
Taxpayers
Natural persons with income derived from within the
territorial jurisdiction of a taxing authority

Classification
1. Resident citizen (RC)
2. Non-residence citizen (NRC)
3. Resident Aliens (RA)
4. Non-resident Aliens (NRA)
a. Engaged in trade or business (NRA-ETB)
b. Not engaged in trade or business (NRA-NETB)

Importance of Classification

They are differ as to Situs of income, Manner of computing tax,

Treatment of certain passive incomes, Allowable deductions
and References in the tax code.
Citizen of the Philippines

Natural person who is/are:

1. Born (by birth) with father and/or mother as Filipino citizens.
2. Born before January 17, 1973 of Filipino mother who elects
Philippine citizenship upon reaching the age of majority
3. Acquired Phil. Citizenship after birth (naturalized) in accordance
with Philippine laws.

Non-resident citizen of the Philippines

1. Physical presence abroad with a definite intention to reside therein

2. Leaves the country during taxable year to reside abroad as a. An
immigrant, or for employment on a permanent basis, or for work or
derives income from abroad and whose employment thereat requires
him to be physically abroad most of the time during the taxable year.
3. A citizen of the country who shall have stayed outside the country for
183 days or more by the end of the year (aggregate)
 Alien

Foreign-born person who is not qualified to acquire Philippine citizenship

by birth or after birth.

Non-resident Alien engaged in trade or business in the Philippines

Stay in the Philippines for an aggregate period of more than 180 days

Applicable Taxes and Tax Rate

1. Classification of taxpayer
2. Sources of Income
3. Type of Income

Taxpayer Tax Rate Sources of Taxable Income

RC Net Income Within & without

NRC,RA,NRA-ETB Net Income Within only
NRA-NETB Gross Income Within only
Types of Income

1. Ordinary or regular income

2. Passive income derived from Philippine sources, and
3. Capital gains subject to capital gain tax

1. Refer to income such as: Compensation income, business income, income

from practice of profession, income from sales and/or dealings of property
and miscellaneous income.

2. Refer to income subject to final withholding tax from sources within the
Philippines such as: interest income, dividend income, royalties income, prizes
and other winnings.

3. Refer to capital gains from sales of shares of stocks of a domestic

corporation not traded in the local stock exchange; Capital gains from sales
of real property in the Philippines.
Summary of Income and the Applicable Income Tax

Types of Income Applicable Tax

Regular income Graduated tax

Passive income Final withholding tax

Capital gains Capital gain tax

 Graduated Tax Rate

Train Law Taxable year 2018-2022 2023 Onward

Income Tax Tax

Not over P250,000 Exempted Exempted

Over P250K not over P400K 20% of excess P250K 15% on over P250K

Over P400K not over P800K P30K+25% in excess P400K P22,500+20% excess P400K

Over P800K not over P2M P130K+30% in excess P800K P102,500+25% excess P800K

Over P2M not over P8M P490K+32% in excess P2M P402,500+30% excess P2M

Over P8M P2,410K+35% in excess P8M P2,202,500+35% excess P8M

Illustration: Computation of Basic Income Tax Due

Purely Compensation Income earner:

Determine the income tax due assuming the taxable compensation
income for 2018:
1. P240,000
2. P300,000
3. P1,850,000

Answers:
1. Tax exempt.
2. P10,000
First P250,000 P 0
in excess of P250,000 x 20% 10,000
Tax due P10,000
3. P445,000
First P800,000 P130,000
in excess of P1,050,000 x 30% 315,000
Tax due P445,000
Passive Income derived from Philippine sources subject to Final Withholding Tax

INTEREST
C&R NRA-ETB NRA-NETB
A. Interest from any currency bank deposit 20% 20% 25%
B. Yield or any other monetary benefits from deposit 20% 20% 25%
C. Yield or any other monetary benefit from trust funds 20% 20% 25%
D. Interest income received from depositary bank 7.5% exempt exempt
E. Interest income from long-term deposits exempt exempt 25%
F. If pre-determined before 5th year a final tax shall
A. 4 year to less than 5 yrs 5% 5% 25%
B. 3 yrs to less than 4 yrs 12% 12% 25%
C. Less than 3 yrs 20% 20% 25%
ROYALTIES
A. In general 20% 20% 25%
B. Royalty on books and other literary works 10% 10% 25%
PRIZES
Prizes exceeding P10,000 20% 20% 25%
Prizes less than P10K are subject to basic tax except those received by NRANETB -25%
OTHER WINNINGS
Prior to 2018 (except PCSO) 20% 20% 25%
Beginning 2018: regardless of amount 20% 20% 25%
PCSO/Lotto winnings amount less than P10K exempt exempt 25%
amount more than P10K 20% exempt 25%
 CASH and/or PROPERTY DIVIDEND

C&R NRA-ETB NRA-NETB

A. Cash and/or property dividend – DC 10% 20% 25%

B. Shares of individual in partnership (except GPP)10% 20% 25%
C. Share of individual JV Association 10% 20% 25%
 Self-Employed &/or Professionals (SEP)

Beginning 2018 or upon effectively of the TRAIN LAW regular income or SEP
amounting to P250,000 in the taxable year but with gross sales/receipts and
other non-operating income not exceeding the revised vat threshold of
P3,000,000 shall have the option to avail of 8% tax on gross sales/receipts and
other operating income in excess of P250,000 in LIEU of the graduated income
tax rate and business tax under Section 116 of the tax code.
 PURELY SEP Mixed Income Earner
With gross sales/receipts

P3M and below Above P3M Compensation Business Professional Income

Regular income tax Regular
Or 8% **tax on income tax P3M & below Above P3M
Goss Regular
Regular income Regular
Sales/receipts and Income Tax +
Tax or 8%**tax income tax
Other operating on gross
income in excess of sales/receipts
P250,000 in LIEU of and other
the graduated tax operating
rate and section 116 income in LIEU
of the
graduated tax
rate and section
116
Illustration

Case A: Purely SEP whose gross sales/receipts and other non-

operating income does not exceed the VAT threshold of
P3,000,000
Determine the income tax due assuming the gross income for 2018:
1. P240,000
2. P550,000
Answers:
1. Exempt from income tax
2. P67,500
First P400,000 income P30,000
in excess of P400,000 x 25% 37,500
Tax due P67,500
Case B: Purely SEP whose gross sales/receipts exceeds the VAT threshold of
P3,000,000

Determine the income tax due assuming the following data in 2018:
Gross sales P5,000,000
Cost of sales (2,250,000)
Operating expenses (1,250,000)
Net taxable income P 1,500,000

Answer: P340,000

First P800,000 income P130,000

In excess of P800,000 x 30% 210,000
Tax due P340,000
Case C: Purely SEP + GR or GS is less than P3m + the SEP is VAT registered

Determine the income tax due if:

Gross sales P2,800,000
Cost of sales (1,500,000)
Operating expenses ( 750,000)
Net income P550,000

Answer: P403,500
Income tax:
First 400,000 income P30,000
In excess of P400,000 x 25% 37,500 P67,500
Business tax:
12% vat = P2.8m x 12% 336,000
Total Tax Due P403,500
 Capital Gains Tax

Capital gains from sale of shares Citizen

Of stock of a domestic Corp. & Residence NRA-ETB NRA-NETB
Not traded in local stock exchange

Prior to 2018
1st P100,000 5% 5% 5%
in excess of P100,000 capital gain 10% 10% 10%
Beginning Jan. 1, 2018
Basic capital gain 15% 15% 15%

Sale of real property located in

the Philippines
Tax Base: Selling Price or FMV
whichever is higher 6% 6% 6%

Note: The assets sold must be a capital assets. Capital assets are assets not used
in business not for sale in ordinary course of business.
Gain on sale of Capital Assets are classified as capital gains.
Capital Gains maybe:
1. Subject to Capital Gains Tax if it pertains to sale of:
a. Shares of stocks of a domestic corp. sold directly to a buyer
and b. Sale of real properties located in the Philippines.

Capital gains tax on sale of shares

Prior to 2018: 5% on 1st P100,000 capital gains
10% in excess of P100,000 capital gains
Beginning 2018: 15% of capital gains

Capital gains on sale of real properties

CGT=6%xthe higher between GSP and FMV
The fair market value of the real properties shall refer to the higher between:
Fair Market Value as provided by the City/Provincial Assessor and
Zonal value as provided by the Commissioner of Internal Revenue

If a real property classified as capital asset is sold to government, the individual taxpayer shall
have the option to be taxed at 6% CGT or basic income tax using the graduated rate.
 Summary of Applicable Income Tax on Sale/Barter/Exchange of
Assets
Ordinary Assets Capital Assets

Real Property Shares of Stock Other Assets

*Basic tax *6% CGT *15% CGT if *basic tax,

including sale *Maybe exempt shares of closely apply rules on
of real if pertaining to held domestic holding period
property by a sale of principal corp. and real capital
real estate residence *6/10 of 1% stock loss carry-over
dealer and *6% CGT or transaction tax if
sale of basic tax if sold shares of publicly
shares/securit to government listed domestic
ies by a *Basic tax if corp.
dealer in situated abroad *basic tax if shares
securities. of foreign corp.
Illustration:

Determine the amount of Capital gains tax (CGT) for 2018 in the following:

Case A: - (Shares of Stock)

1. Greg sold 2,000 shares of domestic corp. in the local stock exchange at
P110 per share. The shares were purchased 3 yrs ago for P100
per share.
Answer: Zero - Subject to 6/10 of 1% stock transaction tax, not CGT.

2. Greg sold 2,000 shares of a domestic corp. directly to a buyer at P180

per share. The shares were acquired 6 months ago at P105 per
share.
Answer:
Selling price (2,000xP180) P360,000
Cost (2,000xP105) ( 210,000)
Capital gains P150,000
CGT rate (Train law) 15%
Capital Gains Tax P22,500

Note: No capital gain tax, If the transactions resulted to a loss

Case B: Real Properties situated in the Philippines

The following transactions of an individual taxpayer pertaining to sale of

real properties for the current year:
1. Sale of a parcel of land used in his trading business. Selling price is
P3,000,000. The property was acquired 5 yrs ago at P1,500,000.
2. Sale of the taxpayer’s residential lot for P5,000,000. The FMV of the
property was P6,000,000. The property was acquired 3 yrs ago at P4,000,000.

Question 1. What is the amount of final income tax for these real estate
transactions?

Answer: P360,000 (P6m x 6%)

6% of gross selling price or FMV whichever is higher

Question 2. Assume that the residential lot in transaction in “2” was sold at
P3,000,000. What should be the correct amount of
capital gains tax on the transaction?

Answer: P360,000 (6% x P6m)

Regardless of gain or loss, the transaction is subject to
6% capital gains tax.
Case C: Real Properties Situated Abroad

Assume the corp. sold a parcel of land used in its operations “abroad”. Selling
price is P3m. The property was acquired 5 yrs ago at P1.5m`

Question: What is the amount of final income tax on the transaction?

Answer: Zero
The 6% capital gains tax on real properties are applicable only
on real properties “held as capital assests” situated in
the Philippines.

Case D: Real properties Sold to The Gov’t or GOCC

Assume that the residential lot in transaction “2” was sold for P3,000,000.
How much is the tax due of the seller?

Answer: Either P360,000 CGT (P3m x 6%) or Basic tax based on the
graduated rate.
 ILLUSTRATION : Income tax Payable

Case A:
A resident citizen employee provide the following data for 2018
taxable year.
Compensation income (gross of deductions below) P450,000
SSS premium contributions 6,000
Philhealth contributions 8,400
Pag-ibig contributions 2,400
Union dues 1,200
Income tax withheld 35,000

Question: How much is the income tax payable of the employee?

Answer: P3,000
Compensation income P450,000
Less: SSS premium contributions P6,000
Philhealth contributions 8,400
Pag-ibig contributions 2,400
Union dues 1,200 18,000
Taxable income 432,000

Tax due:
Tax on 1st P400,000 P30,000
Excess P32,000 x 25% 8,000
Total tax due P38,000
Less: Tax withheld by employer 35,000
Income tax payable P 3,000
Case B.
A resident citizen taxpayer (single) provide the following information
for 2018:
Compensation income P1,000,000
Gross business income – Philippines 2,000,000
Gross business income – Africa 3,000,000
Business expense – Philippines 1,400,000
Business expenses – Africa 2,050,000
Income tax withheld by the individual taxpayer’s
employer on his compensation income 150,000
Income tax withheld by certain payors in business
income in the Philippines 100,000
Income tax payments to the BIR for the 1st Q 125,000

Required: Determine the income tax payable of the taxpayer.

Answer:
P291,000

Computed as follows:
Compensation income P1,000,000
Gross business income – Philippines 2,000,000
Gross business income – Africa 3,000,000
Total P6,000,000
Less: Business Expenses:
Philippines P1,400,000
Africa 2,050,000 3,450,000
Taxable income P2,550,000
Tax due:
Tax on 1st P2,000,000 P490,000
On excess over P2m x 32% 176,000 P666,00
Less: Tax withheld by employer P 150,000
Tax by certain payors 100,000
Income tax paid 125,000 375,000
Income tax payable P291,000
 Illustration: Quarterly Tax Returns
The following cumulative balances on income and expenses in 2018 of John Paul
were given below:
1st Q 2nd Q 3rdQ Q4/year
Gross sales P1,200,000 P2,100,000 P3,000,000 P3,700,000
Cost of sales 700,000 1,200,000 1,800,000 2,200,000
Business expenses 200,000 325,000 550,000 700,000
Income tax paid on:
Interest income 1,500 3,040 4,520 5,960
Sale of land 24,000 24,000 24,000 24,000
Dividend received from
domestic corporation 10,000 10,000 20,000 20,000
Interest income from:
BPI 2,000 4,000 6,000 8,000
UCPB 800 1,200 1,600 1,800
Metro Bank 5,000 10,000 15,000 20,000
Capital gains on sale of land 80,000 80,000 80,000 80,000
Selling price P400,000
Cost P320,000
Required: Compute the income tax payable for:
1. 1st Quarter 4. 4th Quarter
2. 2nd quarter 5. Final tax on passive income
3. 3rd Quarter 6. Capital gains tax
Answers: (1) P10,000 (2)P63,750 (3)P18,750 (4)P37,500 (5)P7,960 (6)P24,000

Solution: 1stQ 2ndQ 3rdQ 4thQ

Gross sales P1,200,000 P2,100,000 P3,000,000 P3,700,000

Cost of sales (700,000) (1,200,000) (1,800,000) (2,200,000)
Business expenses (200,000) ( 325,000) ( 550,000) ( 700,000)
Taxable income P 300,000 P 575,000 P 650,000 P 800,000

Income tax due P 10,000 P 73,750 P92,500 P130,000

Less: Tax paid
Q1 (10,000) (10,000) ( 10,000)
Q2 ( 73,750) ( 63,750)
Q3 (18,750)
Income tax payable P 10,000 P63,750 P18,750 P 37,500

Solution for #5
Dividend received from domestic corp. P20,000 x 10% = P2,000
Interest income from
BPI 8,000 x 20# = 1,600
UCPB 1,800 x 20% = 360
Metro Bank 20,000 x 20% = 4,000
Total final tax on passive income P7,960
 Income Tax Due of Married Taxpayers

Husband and wife shall compute separately their individual income

tax based on their respective total taxable income. Provided, that 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 between the spouses for the purpose of
determining their respective taxable income.
Illustration:
Spouses Pepe and Pilar provided the following data for 2018:
Pepe Pila Pepe/Pilar
Gross income practice of profession P800,000
Gross compensation income P400,000
Dividend income:
Domestic corporation 5,000 5,000
Resident corporation P12,000
Interest on notes receivable 4,000
Interest on Bank deposit-Phils. 2,000 3,000 6,000
Royalty income 2,000
Miscellaneous income 10,000 60,000
Capital gains on sale of ABS shs.
domestic corp. to direct buyer 80,000
Capital loss on sale of DEF Co. Shs
domestic corp. to direct buyer (20,000)
Capital gains on sale of land in QC
FMV-P12m; SP-P10m; Cost-P8m 2000,000
Expenses, business/Profession 425,000 20,000
Required: Determine the following:
1. Total capital gains tax paid by the spouses in 2018.
2. Total final taxes paid on passive income by spouses in 2018.
3. Taxable income of Pepe in 2018.
4. Taxable income of Pilar in 2018
Answer: (1)P732,000 (2)P3,600 (3)P403,000 (4)P438,000

Solution:
Capital gains-ABS(P80,000 x 15%) P12,000
Capital gains on sale of land (P12m x 6%) 720,000
Total capital gains tax P732,000

Dividend income-domestic corp. (P10,000 x 10%) P1,000

Interest on bank deposits (P11,000 x 20%) 2,200
Royalty income (P2,000 x 20%) 400
Total final tax on passive income P 3,600

Gross income from practice of profession P800,000

Dividend income from resident corp. (P12,000/2) 6,000
Interest on notes receivable (P4,000/2) 2,000
Miscellaneous income (P60,000/2) 30,000
Expenses practice of profession (425,000)
Expenses miscellaneous income (P20,000/2) (10,000)
Taxable income – Pepe P403,000
Taxable income - Pilar

Gross compensation income P400,000

Dividend income- resident corp. 6,000
Interest on notes receivable 2,000
Miscellaneous income 40,000
Expenses-miscellaneous income (10,000)
Taxable Income Pilar P438,000
 Senior Citizen and PWDs

Liable for other taxes such as:

1. 20% final withholding tax on interest income from current deposit

2. 15% final withholding tax on interest income from depositary bank
3. 6% final withholding tax on presume capital gains from sales of real
property
4. Other taxes – Vat, Donor, estate, excise & documentary
5. 10% final withholding tax
1. Cash or property dividends received
2. Shares of an individual in the distributable net income of
partnership (except GPP)
3. Share of individual in the net income of an association/JV
6. Pre-determination of long-term deposit
1. 4yrs less than 5 yrs 5%
2. 3yrs less than 4yrs 12%
3. Less than 3yrs 20%
 Entitled benefit of Senior Citizen & PWDs

1. 20% discount and exemption from VAT

2. P500 monthly social pension, for indigent senior citizen
3. Death benefit assistance
4. 5% discount on utilities; and
5. Income tax exemption for minimum wage earners or for senior
citizen/PWDs whose annual taxable income is not more than
P250,000.

Minimum Wage Earners (MWE)

Are exempt from income tax on:

1. Minimum wage
2. Holiday pay
3. Overtime pay
4. Night shift differential
5. Hazard pay
 Applicable Taxes of MWEs

Taxpayer Income Tax Creditable Withholding Tax

Purely MWE Exempt Exempt

MWE with additional Still treated as MWE Still treated as MWE

Benefits from the hence, exempt hence exempt
Employer exceeding tax
Exempt threshold such
As the P90,000 limit

MWE with additional Min. Wage=exempt Min. Wage=exempt

Business income Bus. Income=subject Bus. Income =subject
to basic tax to creditable withholding tax
 Filing of Income Tax Return (ITR)

BASIC TAX

For purely compensation income earners –

On or before April 15 of succeeding year

For Business Income Earners including income from profession

1stQ May 15
2ndQ Aug 15 (45days after end of Quarter)
3rdQ Nov 15 (45days after end of Quarter)
Final/Annual April 15 of the succeeding year

Final Withholding Tax On Passive Income

Beg 2018 filed and paid not later than the last day of the
month following the close of the taxable quarter
during which the withholding was made.
 Capital Gain Tax

Shares of Stock
Ordinary Return – 30days after each transaction
Final consolidated Return – on or before April 15 of the
following year.
Real Property
30days following each sale or other disposition

Manner of Filing
Filing of ITR may be made through:
A. Manual filing
B. Electronic Filing and Payment System (EFPS)
C. eBIR Forms

NOTE:
When the tax due is in excess of P2,000 the individual taxpayer
may elect to pay tax in two equal instalments as follows:
1st at the time of filing
2nd on or before October 15 following the close
of the calendar year
***END***