TAXATION OF

INDIVIDUALS
Income Taxation
 WHAT COMES TO MIND
WHEN YOU HEAR THE WORD
TAXATION?
 Learning Outcomes
01 IDENTIFY THE INDIVIDUAL INCOME
TAXPAYERS

DEFINE AND ILLUSTRATE THE

02 INDIVIDUAL TAXPAYERS

03 STATE THE SOURCES OF INCOME OF

INDIVIDUAL TAXPAYERS

04 RECOGNIZE THE CATEGORIES OF

INCOME AND TAX RATES
 Learning Outcomes
LIST THE SOURCES OF PASSIVE
05 INCOME AND THE FINAL TAX
RATE
DEFINE THE ALLOWABLE
06 DEDUCTIONS FROM GROSS
INCOME
07 DISCUSS THE GUIDELINES OF
CHANGE STATES

DEFINE AND COMPUTE TAXABLE

08 INCOME AND TAX DUE
 Learning Outcomes
EXCLUSION FROM GROSS
09 INCOME
BE FAMILIAR WITH INDIVIDUAL
10 TAXPAYERS EXEMPT FROM INCOME
TAX

11
12
 01
CLASSISFICATION OF
INDIVIDUAL
CITIZEN

• RESIDENT
• NON-RESIDENT

ALIEN

• RESIDENT
• NON-RESIDENT
• Engaged in Trade or business in the Philippines
• Not engaged in trade or business in the Philippines
• Employed by (RHQs and ROHQs of multinational entities)
(OBU) (Petroleum Contractors and Sub-contractors)
 02
DEFINE AND
ILLUSTRATE
 CITIZEN
A
Citizens of the Philippines at the time of the
adoption of the Feb. 2,1987 Constitution

B
Fathers or mothers are citizens of the
Philippines

Born before Jan.17, 1973, the date of the adoption of the

C 1973 Constitution, of Filipino mothers, who elect Philippine

citizenship upon reaching the majority

D
Naturalized in accordance with the law
Resident • Filipino citizen who permanently resides in the Philippines
Citizen

• Citizen of the Philippines who has a definite intention to reside

therein
Non • Leaves the Philippines during the taxable year to reside

Residen abroad (immigrant or employment)

• Works and derives income from abroad and required to be
t Citizen physically present abroad most of the time
• Previously considered as NRC and arrives at the Philippines at
any time during the taxable year to reside back permanently

D
Resident •Resides within the Philippines
Alien but is not a citizen thereof

•An individual whose

Non
residence is not within the
Residen
Philippines and is not a
t Alien
citizen thereof
D
 Non
Resident
Alien – •An alien is carrying on a
Engaged in business in the Philippines
Trade or
Business

NRA not
engaged in •An alien who stayed for 180
trade or days or less
business

D
Employed by • Works in a branch established in the Philippines by
Regional or multinational companies and which HQ do not earn
Area HQ and or derive income from the Philippines
Regional • Works also in a branch established in the Philippines
Operating by multinational companies which are engage in
HQ operations

Employed in
Offshore • Works in a branch, subsidiary or affiliate of a foreign
Banking banking corporation authorized by the BSP
Units

D
 03
SOURCES INCOME
 SOURCES OF
INCOME
The property, activity or service that
produced the income.
SOURCE OF INCOME
INCOME TAXPAYER
WITHIN WITHOUT
RESIDENT CITIZEN √ √
NON-RESIDENT √
CITIZEN
RESIDENT ALIEN √
NON-RESIDENT √
ALIEN
 04
CATEGORIES OF
INCOME AND TAX
 02 BUSINESS
0 COMPENSATIO
N
1 04 CAPITAL
STOCKS
03 PASSIVE GAINS

06 FRINGE
05 CAPITAL
REAL
BENEFIT
GAINS
PROPERTY
COMPENSATION INCOME –
all remuneration for services
performed by an employee for
his employer under an
employer – employee
relationship
Taxed at GRADUATED
RATES 15% to 35%
BUSINESS INCOME – arises
from self-employment or
practice of profession.
Taxed at GRADUATED
RATES 15% to 35%
PASSIVE INCOME – subject
to a separate and final tax.

FINAL TAX – imposed on

income or gain shall no longer
be included as taxable income
subject to the graduated rates.
 FINAL
PASSIVE INCOME
TAX
Interests from any currency bank deposit and yield
or any other monetary benefit from deposit 20%
substitutes
Interest income received by an individual taxpayer
(except non-resident) from a depository bank 15%
under the expanded foreign currency deposit
Proceeds of pre-terminated long-term deposit or
investment in the form of savings…
 Four (4) years but less than five (5) years 5%
 Three (3) years but less than four (4) years 12%
 Less than three (3) years 20%
Royalties (except on books and other literary
works and musical compositions) 20%

Royalties on books and other literary works and

musical compositions 10%
 PASSIVE INCOME TAX RATE
Prizes (except prizes amounting to P10,000 or
20%
less)
Winnings (except Philippine Charity Sweepstakes
and Lotto winnings amounting to P10,000 or less) 20%

Cash and Property Dividends 10%

Capital Gains from Sale of Shares of Stock not
Traded in Stock Exchange 15%

Capital Gains from Sale of Real Property located

in the Philippines 6%
CAPITAL GAINS FROM SALE
SHARES OF STOCK NOT
TRADED THROUGH THE LO
STOCK EXCHANGE – taxed
and 10% final taxes on a per
transaction basis.
On NET Capital Gains*
Not Over P100,000 5%
Amount in excess of P100,000 10
CAPITAL GAINS FROM
SALE OF REAL
PROPERTY – Taxed at 6%
final tax on the gross selling
price or current fair market
value at the time of sale,
whichever is higher.
FRINGE BENEFITS –
Means any good, service, or
other benefit furnished or
granted by an employer in
cash or in kind in addition to
basic salaries, to an individual
employee (except rank and
file) under an employer-
employee relationship .
Rev.Reg.8-18 implementing TRAIN
imposes a fixed 35% final tax
 CATEGORIES OF INCOME AND
APPLICABLE TAX RATES
CITIZEN ALIEN NON-RESIDENT ALIEN
INCOME NON- NOT
RESIDENT RESIDENT ENGAGED
RESIDENT ENGAGED
1. ON TAXABLE INCOME as
defined in Sec. 31 the tax
computed under the revised Sec. 15% - 32% FT 25%
24 (A), except NRA-NETB
ON PASSIVE INCOME
2. In general, interests, royalties,
prizes and other winnings 20% FT 25%
3. Cash and/or property dividends 6%, 8%, 10% 20% FT 25%
ON CAPITAL GAIN
4. Sale of shares of stock not 5% - 10%
traded in stock exchange
5. Sale of real property 6%
 05
PASSIVE INCOME AND
TAX RATES
 PASSIVE INCOME
PASSIVE INCOME RC/ NRC/ RA NRA-ETB
Interests from any currency bank deposit and yield or any
other monetary benefit from deposit substitutes 20% 20%
Interest income received from a depository bank under the 15%
expanded foreign currency deposit except NRC which is Exempt
tax exempt
Proceeds of pre-terminated long-term deposit or investment
in the form of savings…
 Five years and longer Exempt Exempt
 Four (4) years but less than five (5) years 5% 5%
 Three (3) years but less than four (4) years 12% 12%
 Less than three (3) years 20% 20%
Royalties (except on books and other literary works and
musical compositions) 20% 20%

Royalties on books and other literary works and musical

compositions 10% 10%
 PASSIVE INCOME
PASSIVE INCOME RC/ NRC/ RA NRA-ETB
Prizes (except prizes amounting to P10,000 or less)
20% 20%
Winnings (except Philippine Charity Sweepstakes and Lotto
winnings amounting to P10,000 or less) 20% 20%

Cash and Property Dividends 10% 10%

Capital Gains from Sale of Shares of Stock not Traded in
the Stock Exchange 15% 15%

Capital Gains from Sale of Real Property located in the

Philippines 6% 6%
 06
ALLOWABLE
DEDUCTIONS
 ALLOWABLE
DEDUCTIONS
Under the TRAIN Law, basic personal and/or additional
exemptions are no longer allowed as deductions from
compensation income and business income
 07
RULES ON CHANGE
STATUS
 RULES

If the spouse dies or any

If the taxpayer dies of the dependents dies or
If the employee should during the taxable year, if any such dependent
have additional his death shall not affect marries, becomes 21
dependents during the the amount of exemption years of age, or gets
taxable year, he may
gainfully employed
claim the additional
during the taxable year
exemption in full
 08
TAXABLE INCOME AND
TAX DUE PER REV. REG.
Effective January 1, 2018 until December 31, 2022

RANGE OF TAXABLE INCOME TAX DUE = a + (b x c)

OVER NOT OVER BASIC AMOUNT ADDITIONAL OF EXCESS
(a) RATE OVER
(b) (c)
0 250,000.00 0 0 0
250,000.00 400,000.00 0 20% 250,000.00
400,000.00 800,000.00 30,000.00 25% 400,000.00
800,000.00 2,000,000.00 130,000.00 30% 800,000.00
2,000,000.00 8,000,000.00 490,000.00 32% 2,000,000.00
8,000,000.00 0 2,410,000.00 35% 8,000,000.00
Effective January 1, 2023

RANGE OF TAXABLE INCOME TAX DUE = a + (b x c)

OVER NOT OVER BASIC AMOUNT ADDITIONAL OF EXCESS
(a) RATE OVER
(b) (c)
0 250,000.00 0 0 0
250,000.00 400,000.00 0 15% 250,000.00
400,000.00 800,000.00 22,500.00 20% 400,000.00
800,000.00 2,000,000.00 102,500.00 25% 800,000.00
2,000,000.00 8,000,000.00 402,500.00 30% 2,000,000.00
8,000,000.00 0 2,202,500.00 35% 8,000,000.00
Individuals earning purely
compensation income
Self-Employed Individuals • If income does not exceed
Earning Income Purely from
Self-Employment or Practice
of Profession
• Taxed based on the
income tax rates
prescribed under
subsection (A) hereof
P3,000,000, the graduated
rates under Section 24(A)(2)
(a) of the tax code, as
amended
• Eight percent (8%) tax on
gross sales or receipts and
other non-operating income in
excess of P250,000 in lieu of
the graduated income tax
rates (except VAT registered
and GPP
 Gross compensation income
 Less:
 Non-taxable income/benefits
(13th month pay and other benefits,
de minimis benefits, and employee’s
share in the SSS, GSIS, PHIC, Pag-
ibig contributions and union dues)
 8% tax due
 Gross Sales + Gross Receipts
 Less:
 Amount Allowed as Deduction under
Sec.24(A)(2)(b)
 Graduated
 Gross Sales + Gross Receipts
 Less:
 Cost of Sales
 Operating Expenses
Both compensation and • Compensation Income -  Tax due is the sum of the tax
business income (MIXED Taxed based on the income due from compensation and
INCOME EARNER) tax rates prescribed under business income
subsection (A) hereof  The amount of P250,000
• Business Income – below allowed as deduction under the
VAT Threshold (graduated law for taxpayers earning solely
or 8%); exceeds VAT from self employment/practice
Threshold (graduated) of profession is not applicable
for mixed income earner
 TAXABLE INCOME

oGross income less the deductions and/or personal and

additional exemptions, if any, authorized for such types of
income, by the Tax Code or other special laws.
oThe amount or tax base upon which tax rate is applied to
arrive at the TAX DUE
 Individuals Earning Purely
Compensation Income
Gross Compensation Income xxx
Less: Non-taxable Income/benefits xxx
Net Compensation Income xxx
Tax Due (Section 24 (A))
 Non-taxable income/benefits such as but not limited to 13th Month Pay, Other benefits, De minimis
benefits, Employee’s share in the SSS, GSIS, Pag-ibig Contributions and union dues
 Minimum Wage Earners shall be exempt from the payment of income tax based on their statutory
minimum wage rates. The holiday pay, overtime pay, night shift differential pay and hazard pay received
by such earner are likewise exempt.
 Self-Employed Individuals Earning
Income Purely from Self-Employment or
Practice of Profession
If income does not exceed P3,000,000, the individual can opt to choose to avail an eight percent (8%) tax on
gross sales/receipts an other non-operating income in excess of P250,000.00 in lieu of the graduated rates

Gross Business Income (Sales or Receipt) xxx

Less: Amount allowed as deduction under xxx
Sec.24(A)(2)(b) or P250,000.00
Taxable Income xxx
Tax Rate 8%
Tax Due xxx
 Self-Employed Individuals Earning
Income Purely from Self-Employment or
Practice of Profession
If chooses graduated rates and if exceeds the threshold of P3,000,000.00, the computation is as follows:

Gross Business Income (Sales or Receipt) xxx

Less: Cost of Sales xxx
Gross Income xxx
Less: Operating Expenses xxx
Taxable Income xxx
Tax Due (Section 24
(A))

If income is subject to other percentage tax even if below threshold, it will also be subject to graduated income
tax rates
 MIXED INCOME
EARNER
If individual opted to choose to avail an eight percent (8%) tax on gross sales/receipts:
Gross Compensation Income xxx
Less: Non-taxable Income/benefits xxx
Taxable Compensation Income xxx
Tax Due 1 (Section 24 (A))
Gross Business Income (Sales or Receipt) xxx
Add: Non-operating income xxx
Taxable Business Income xxx
Tax Rate 8%
Tax Due 2 xxx
Total Tax Due is the sum of 1 and 2
The allowable deduction of P250,000 is only allowed to those earning purely business income
If individual is subject to graduated income tax rate:
Gross Compensation Income xxx
Less: Non-taxable Income/benefits xxx
Taxable Compensation Income xxx
Add: Taxable Income from Business
Gross Business Income (Sales or Receipt) xxx
Less: Cost of Sales xxx
Gross Income xxx
Less: Operating Expenses xxx
Net Income from Operation xxx
Add: Non-operating income xxx xxx
Total Taxable Income xxx
Tax Due (Section 24 (A))
 NON RESIDENT ALIEN NOT
ENGAGED IN TRADE OR
BUSINESS

Gross Income xxx

Multiply by final tax rate 25%
Net Compensation Income xxx
 09
EXCLUSIONS FROM
GROSS INCOME
Life Insurance - proceeds

Amount received by insured as return of premium

Gifts, Bequests, and Devices

Compensation for Injuries and Sickness

Income exempt from Treaty

Retirement benefits, Pensions and Gratuities

Miscellaneous Items
• Income derived by Foreign Government
• Income derived by the Government or its Political Subdivisions
• Prizes and Awards
• Prizes and Awards in Sports Competitions
• 13th month pay and other benefits not exceeding P90,000

GSIS, SSS, Medicare and other contributions

Gains from sale of bonds, debentures or other certificate of

indebtedness with a maturity of five (5) years

Gains from redemption of shares in mutual funds

 10
INDIVIDUALS EXEMPT
FROM INCOME TAX
Non-resident Citizen
• Intends to reside abroad
• Leave the Philippines during taxable year
• Employment requires him to be present abroad
most of the time
• Previous NRC and arrives to the Philippines during
taxable year

Overseas Contract Worker, including

overseas seaman
Barangay Micro Business Enterprise

Expanded Senior Citizen Act of 2010

Personal Equity and Retirement Account

Act of 2008
Effective January 1, 2018 until December 31, 2022

RANGE OF TAXABLE INCOME TAX DUE = a + (b x c)

OVER NOT OVER BASIC AMOUNT ADDITIONAL OF EXCESS
(a) RATE OVER
(b) (c)
0 250,000.00 0 0 0
250,000.00 400,000.00 0 20% 250,000.00
400,000.00 800,000.00 30,000.00 25% 400,000.00
800,000.00 2,000,000.00 130,000.00 30% 800,000.00
2,000,000.00 8,000,000.00 490,000.00 32% 2,000,000.00
8,000,000.00 0 2,410,000.00 35% 8,000,000.00
Effective January 1, 2023

RANGE OF TAXABLE INCOME TAX DUE = a + (b x c)

OVER NOT OVER BASIC AMOUNT ADDITIONAL OF EXCESS
(a) RATE OVER
(b) (c)
0 250,000.00 0 0 0
250,000.00 400,000.00 0 15% 250,000.00
400,000.00 800,000.00 22,500.00 20% 400,000.00
800,000.00 2,000,000.00 102,500.00 25% 800,000.00
2,000,000.00 8,000,000.00 402,500.00 30% 2,000,000.00
8,000,000.00 0 2,202,500.00 35% 8,000,000.00
 What key concepts on
taxation have you learned
today?
Task
Answer Chapter 2 of Ballada Book:
• TRAIN True or False 1-5 items
• TRAIN Multiple Choice 1-5 items
• Problems 1A, 2A, 3A, 6B

Assessment is as follows:
Theory one (1) point each item
Problem five (5) points each item, with clear solutions
THANK YOU
Write a closing statement or
call-to-action here.
 CREDITS

This presentation template is free for

everyone to use thanks to the following:

SlidesCarnival for the presentation template

Pexels for the photos

HAPPY