GROSS INCOME

GROSS INCOME ITEMS OF GROSS INCOME SUBJECT TO

REGULAR TAX
➢ is broadly defined as any inflow of
wealth to the taxpayer from whatever Gross Income includes, but is not limited to, the
source, legal or illegal, that increases following items:
net worth. It includes income from 1. COMPENSATION FOR SERVICES IN
employment, trade, business or WHATEVER FORM PAID
exercise of profession, income from 2. GROSS INCOME FROM THE
properties, and other sources such as CONDUCT OF TRADE, BUSINESS,
dealings in properties and other regular EXERCISE OF A PROFESSION
or casual transactions. ➢ This includes income from any trade or
business, legal or illegal, and whether
ELEMENTS OF GROSS INCOME registered or unregistered. Gross
Income from business or profession is
1. IT IS A RETURN ON CAPITAL THAT
determined as follows:
INCREASES NET WORTH.
➢ Return on Capital is income subject to
Sales/Revenues/Receipts/Fees P XXX,XXX
income tax
Less: Cost of Sales or Services XXX,XXX
➢ Return of Capital is not Taxable
Gross Income from Operations P XXX,XXX
Illustration:
3. GAINS DERIVED FROM DEALINGS
ABC Purchased goods for P300 and sold them IN PROPERTIES
for P500. The P500 consideration can be 4. INTEREST
analyzed as follows: ➢ This particularly refers to Interest
Income Other than Passive Interest
Selling Price (total consideration received) Income subject to final tax. A taxable
Cost (value of inventory forgone) Interest Income must have been
Mark-up (gross income) actually paid out of an agreement to
pay interest.
Capital Items deemed with infinite value
There are capital items that have infinite value
and are incapable of pecuniary valuation.
Examples of interest income subject to
Anything received as compensation for their loss
regular income tax
is deemed a return of capital.

Examples: a. Interest Income from lending activities to

1. Life (Life Insurance)
2. Health (Personal Injuries or Tortuous acts)
3. Human Reputation (Oral Defamation or b.
slander)
c.
2. IT IS A REALIZED BENEFIT
➢ The term realized means earned. It
requires that there is a degree of
undertaking or sacrifice from the
taxpayer to be entitled of the benefit.
individuals and corporations by banks,
finance companies, and other lenders.
Interest Income from corporate bonds and
promissory notes
Interest Income from bank deposits abroad
- Interest income or yield from local
currency bank deposits, deposit
substitutes, trust funds and similar
arrangements are subject to final tax as
follows:

Requisites of a realized benefit:

1. There must be an exchange transaction.
2. The transaction involves another entity.
3. It increases the net worth of the recipient.

3. IT IS NOT EXEMPTED BY LAW,

CONTRACT, OR TREATY
 GROSS INCOME

Local Currency Deposits

Sources of Recipient
On Interest Income Recipient Passive
Royalties
Individuals Corporations
Individuals Corporations
From Banks
Books, literary
works, and
-Short term
musical 10% Final
deposits/certificates(L 20% Final
compositions Tax 20% Final Tax
ess than Five Years) Tax 20% Final Tax

20% Final
-Long term
Other Sources Tax 20% Final Tax
deposits/certificates(
More than Five Note:
Years) Exempt 20% Final Tax - the 10% preferential royalty final tax on books
and literary works pertain to printed literatures.
Royalties on books sold on e-copies or CDs
From Non-Bank such as e-books are subject to the 20% final tax
Institutions - royalties on cinematographic films and similar
works paid to NRA-ETBs, NRA-NETBs or
-Short term Regular Regular NRFCs is subject to a final tax of 25%
deposits/certificates(L Income Tax Income Tax -
ess than Five Years) - 20%/25% 20%/25% 7. DIVIDENDS
➢ comprehensive summary of rules on
-Long term dividends
deposits/certificates( Regular Regular
More than Five Income Tax Income Tax -
Years) - 20%/25% 20%/25% Recipient Source of Dividends
Note: taxpayer
- The final tax on deposits applies only to those Domestic Foreign
made with banks Corporation Corporation
- NRA-NETBs and NRFCs are subject to 25%
general final tax on their interest income
Individuals
5. RENTS
6. ROYALTIES -Citizens and
➢ Royalties earned from sources within Residents 10% Final Tax Regular Tax
the Philippines are generally subject to
final income tax except when they are -NRA-ETB 20% Final Tax Regular Tax
active by nature, which means it will
require continuing rendering of service. 25% Final
Active royalty income and royalties -NRA-NETB 25% Final Tax Tax
earned from sources outside the
Philippines are subject to regular
Corporations
income tax.
➢ Passive royalty income received from
sources within the Philippines is subject -Domestic
to the following final tax rates: Corporation Exempt Regular Tax

-RFC Exempt Regular Tax

25% Final
-NRFC 25% Final Tax Tax
 GROSS INCOME

8. ANNUALITIES -Winnings from other Regular Regular

➢ The excess of annuity payments sources Tax Tax
received by the recipient over premium Exempt prizes
paid is taxable income in the year of - Prizes received by a recipient without any effort
receipt on his part to join a contest Ex. Nobel Prize,
9. PRIZES AND WINNINGS Most Outstanding Citizen, Most Benevolent
➢ summary rules of prizes and winnings: Citizen of the Year, and Similar Awards.
Individual Taxpayers - Prizes from sports competitions that are
sanctioned by their respective national sport
Prizes: Earned from Sources organizations

Within Abroad 10. PENSIONS

➢ As a general rule, retirement benefits
-P10,000 and received by a retired employee are
below Regular Tax Regular Tax considered compensation income
subject to tax. This rule, however, is not
without exceptions. Under Republic Act
-more than (RA) 4917, benefits granted to these
P10,000 20% Final Tax Regular Tax employees under a tax-qualified plan
are exempt from tax if the retiring
employees meet the following criteria:
○ the retiring employee is at least 50
Earned from years of age and has served the
Winnings: Sources employer for at least 10 years; and
○ the employee has not previously
Within Abroad availed of the privilege under a
retirement benefit plan of the same
or another employer.
-PCSO winnings, 20% Final
exceeding P10,000 Tax N/A
11. PARTNER’S DISTRIBUTIVE SHARE
FROM THE NET INCOME OF
-PCSO winnings, not GENERAL PROFESSIONAL
exceeding P10,000 EXEMPT N/A PARTNERSHIP

-Winnings from other 20% Final Regular

sources Tax Tax

Summary rules of prizes and winnings:

Corporate Taxpayers

Earned from
Prizes/Winnings: Sources

Within Abroad

-Prizes regardless of Regular Regular

amount Tax Tax

-PCSO winnings, 20% Final

exceeding P10,000 Tax N/A

-PCSO winnings, not

exceeding P10,000 EXEMPT N/A