TRAIN Law on Income Tax for
Individuals, Partnerships &
Corporations – Part 1
Marinor Gallardo, CPA, Ph.D.
Lecturer
OUTLINE
I. Revisit the Vision – Mission of
President Duterte's Administration
II. Highlights of Income Tax Reforms
Under the TRAIN Law for Individuals
(R.A. No. 10963)
III. Overview of the Classification of
Individual Taxpayers
IV. Key Sources and Categories of
Income
V . Illustrations
OUTLINE
VI. Passive Income Tax
VII. Fringe Benefit Tax
VIII. Train Law on Income for Purely
Compensation Income Earner,
Business Earner and Mixed Income Earner
IX. Nature of Withholding Taxes
X. Computation of Withholding Taxes
XI. Adjustment for Year-End Withholding Taxes
XII. Alphalist
OUTLINE
XIII.Key Features of Partnership and
Corporation
XIV. Highlights of the Key Amendments on
Income Tax under the TRAIN Law for
Partnership and Corporation
XV. BIR Forms – 1604C, 1604CF, 2306, 2307 and
2316, 1700
MISSION-VISION
1) Mission – Vision of
President Duterte's
Administration
TRAIN LAW
(R.A. No. 10963
(Office of the President; op-proper.gov.ph)
COMPARISON
CITIZEN / RA
OLD LAW
Tax Schedule
TRAIN LAW
Tax Schedule effective January 1, 2018 to
Not over P10,000 5% December 31, 2022
Over P10,000 but not P500 + 10% of the
Not over P250,000 0%
over P30,000 excess over P10,000
Over P30,000 but not P2,500 + 15% of the
over P70,000 excess over P30,000
Over P70,000 but not P8,500 + 20% of the
over P140,000 excess over P70,000
Over P140,000 but P22,500 + 25% of the
not over P250,000 excess over P140,000
COMPARISON
CITIZEN / RA
OLD LAW TRAIN LAW
Tax Schedule effective January 1, 2018 to
Over P250,000 P50,000 + 30% of December 31, 2022
but not over the excess over
P500,000 P250,000
Over P250,000 20% of the excess
but not over over P250,000
P400000
Over P400,000 P30,000 + 25% of the
but not over excess over P400,000
Over P500,000 P125,000 + 32% P800,000
of the excess over
P500,000 Over P800,000 P130,000 + 30% of
but not over the excess over
P2million P800,000
Over P2Million P490,000 + 32% of
but not over the excess over
P8Million P2Million
Over P8Million P2,410,000 + 35% of
the excess over
P8Million
TYPES OF BUSINESS
T TAXES
COMPARISON
CITIZEN / RA
Section 24 Refer to Revenue
Income tax rates Memorandum
on individual Circular (RMC) Nos.
citizen and 105-2017 and 1-
individual 2018, Revised
resident alien Withholding Tax on
Compensation Table
1.Citizen – resident & non-
resident
2. Alien – resident & non-
resident (engage or not-
engage in trade or business
in the Philippines
COMPARISON
RESIDENT NON-RESIDENT
CITIZEN CITIZEN
Those who > Citizens of the
permanently Philippines who
resides in the leaves the country
Philippines during the taxable
year to reside abroad
– immigrant/
employment on a
permanent basis
COMPARISON
NON-RESIDENT
RESIDENT ALIEN ALIEN
AN ALIEN IS > NOT ENGAGED IN
CONSIDERED A BUSINESS:
RESIDENT OR > IF HE STAYED FOR
NOT DEPENDING 180 DAYS OR LESS IN
ON HIS THE PHIL. DURING
INTENTION THE TAXABLE YEAR.
WITH REGARD
TO THE LENGTH
AND NATURE OF
HIS STAY
Ex.
Ex. 1.
3. YES he is
A JAPANESE a Resident
COMPUTER Alien.
EXPERT
One
WASwho comes
HIRED BYto A the Philippines for a
PHILIPPINE
definite purpose which in its nature
CORPORATION TO ASSIST IN ITS
would require an extended stay and to
COMPUTER SYSTEM INSTALLATION
that end makes his home temporarily
FOR
in theWHICH HE HAD
Philippines, TO STAY
he becomes a IN THE
PHILIPPINES
resident alien. FOR
Though6 MONTHS.
it may be his
Q: IS HEat
intention A all
RESIDENT ALIEN?
times to return to his
domicile (place of residence) abroad
when the purpose for which he came
has been accomplished.
Ex.
1. YES he is a Resident Alien.
One who comes to the Philippines for a
definite purpose which in its nature would
require an extended stay and to that end
makes his home temporarily in the
Philippines, he becomes a resident alien.
Though it may be his intention at all
times to return to his domicile (place of
residence) abroad when the purpose for
which he came has been accomplished.
Ex 2.
A Korean actor was engaged to
perform in the Philippines for 2
weeks after which he returned to
his country.
Q: IS HE A RESIDENT ALIEN?
Ex.
2. NO, HE IS NOT A RA.
> One who comes to the
Philippines for a definite
purpose which in its nature
maybe promptly accomplished
is a transient.
Ex.
3. An alien whose shares of
stocks is in the Philippines.
Q: IS HE CONSIDERED AS A
RESIDENT ALIEN ENGAGED IN
BUSINESS IN THE PHIL.?
Ex.
3. NO, He is NOT a Resident alien
engaged in business.
>MERE OWNERSHIP OF SHARES
IN THE PHILIPPINES IS NOT
ENOUGH TO CONSTITUTE AS
ENGAGING IN TRADE OR
BUSINESS IN THE PHILIPPINES
SOURCES OF
INCOME
> IS NOT THE PLACE BUT THE
PROPERTY, ACTIVITY OR SERVICE THAT
PRODUCES THE INCOME.
EX. Income derived from labor – place
where the labor is performed.
Income derived from the use of capital –
is the place where capital is
employed
CATEGORIES OF
INCOME
A. TRAIN LAW
Compensation > Deleted the
Income Personal & Addt'l
exemption
B.Business > deleted Premium
Income payments on
health insurance
CATEGORIES OF
INCOME
C. Passive Income
D. Capital Gains Tax
From shares of
stocks not traded
through the local
stock exchange
E. Capital Gains Tax
from sale of property
F. Fringe Benefits
GROSS COMPENSATION
INCOME FORMULA: (OLD LAW)
>GCI – BPE – AE – PREMIUMS
ON HEALTH INSURANCE =
TAXABLE INCOME
> DELETED
BPE, AE, PREMIUMS
ON HEALTH
BUSINESS INCOME FORMULA:
(OLD LAW)
>GROSS BUSINESS INCOME
- Basic Personal Exemption
– ALLOWABLE DEDUCTION FOR
SELF-EMPLOYED NOT INCLUDING
PREMIUMS ON HEALTH &
HOSPITALIZATION INSURANCE
= TAXABLE INCOME
BUSINESS INCOME FORMULA:
(TRAIN LAW)
GROSS BUSINESS INCOME
– ALLOWABLE DEDUCTION
FOR SELF-EMPLOYED
= TAXABLE INCOME
PASSIVE INCOME -
FINAL TAX
OLD TRAIN LAW
LAW
Interest income
received by an
The rate of final tax on
individual taxpayer interest income received
(except a non- by resident individual
resident individual)
from a depository taxpayer under the
bank under the expanded foreign currency
expanded foreign
currency deposit
deposit system increased
(EFCD) system is from 7.5% to 15% final
subject to 7.5% final tax
tax
Section 24
Income tax of self-employed and/or
professionals
> OLD TRAIN LAW
LAW > whose gross sales/receipt and
Taxable other non-operating income do not
exceed the VAT threshold of
income is P3Million, the tax shall be, at the
subject to the taxpayer’s option, either:
same 1) 8% income tax on gross sales or
gross receipts in excess of P250,000
graduated in lieu of the graduated income tax
rates rates;
2) percentage tax under Sec. 116; OR
3) Income tax based on the graduated
income tax rates for individuals
Section 24
Income tax for MIXED INCOME EARNERS
> OLD TRAIN LAW
LAW > For income from compensation: based
on graduated income tax rates for
Taxable individuals, AND
For income from business and/or
income is practice of profession:
subject to the Gross sales/receipts which do not exceed
the VAT threshold of P3Million – 8%
same income tax on gross sales/receipts and
graduated other non-operating income OR income tax
based on graduated income tax rates on
rates taxable income, at the taxpayer’s OPTION
Gross sales/receipts and other non-
operating income which exceeds the VAT
threshold of P3Million – income tax based
on graduated tax rates for individuals
FRINGE BENEFITS TAX
Section 32 (B) Tax exempt 13th month pay
OLD TRAIN LAW
LAW
The amount of The amount of tax-
tax-exempt exempt 13th month pay
13th month pay and other benefits is
and other P90,000.
benefits is
P82,000.
FILING OF INDIVIDUAL INCOME TAX
RETURN – Sec. 51
OLD TRAIN LAW
LAW whose
An individual Individual taxpayers
gross income does whose taxable income is
not exceed his total subject to zero percent
personal and under the new graduated
additional tax table (i.e., does not
exemptions for exceed P250,000) shall
dependents are not not be required to file an
required to file income tax return.
income tax return
(ITR).
FILING OF INDIVIDUAL INCOME TAX
RETURN – Sec. 51
TRAIN LAW
Additional provision:
The ITR shall consist of a maximum of four (4)
pages in paper OR electronic form. It shall only
contain the following information:
1. Personal profile and information
2. Gross sales receipts or income from
compensation, from business, or from exercise of
profession (except income subject to final tax)
3. Allowable deductions
4. Taxable income
5. Income tax due and payable
ILLUSTRATION FOR COMPENSATION INCOME:
FROM NON-VAT TO VAT
> Miguel Go is an employee of Angels of
TAXPAYER (RR No. 8-2018)
Abundance Wellness Hub. He is receiving the
following benefits:
1. Basic Salary of P25,000.00 per month;
>
2. 13th month pay and bonuses of P90,000.00.
> He is married with 4 dependents.
Q:
1. How much is the Net taxable income under the
old law and under the TRAIN Law?
2. How much is the tax due under the old law and
under the TRAIN Law?
ANSWER:
> FROM NON-VAT TO VAT old law TRAIN LAW
TAXPAYER (RR No. 8-2018)
Compensation Inc.
(12 mos x 25K) P300K P300K
ADD: 13th MP
>
& Bonus P90K P90K
Less: exempt 82K 8K 90K 0
Less: BPE 50k 0
AE 100k 0
Taxable Income P158K P300K
Tax Due 25% P 27,000 20% P10,000
Difference tax savings P17,000.00
HOW TO COMPUTE FOR WITHHOLDING
TAX ON COMPENSATION
Step 1: Determine the Compensation
of the employee for the payroll
period. Ex. daily, weekly, monthly,
semi monthly.
Step 2. Refer to Table for
Withholding Tax compensation range.
Step 3. Deduct the figure in Step 1
and step 2.
Step 4. Multiply it with the
withholding tax rate.
FROM NON-VAT TO VAT
Following the steps in computing the WHT on
compensation:
TAXPAYER (RR No. 8-2018)
1. Same data for Miguel Go with compensation
amounting to P25,000 per month.
>
2. Compensation rate table, Annex A of RMC No.
105-17, it falls under the compensation level 2 in
the amount of P20,833 - with a 20% over.
3. Deduct P25,000 and P20,833.
4. The difference of P4,167 is multiplied by 20%.
5. The withholding tax on compensation is
P833.40.
WITHHOLDING TAX TABLE
(ANNEX A of RMC No. 105-17)
DAILY
1 2 3 4 5 6
COMPENSATION 685 &
LEVEL BELOW 685.00 1,096.00 2,192.0 5,479.00 21,918.0
0 0
PRESCRIBED
MINIMUM
WITHHOLDING 0 0+ 82.19 + 356.16 1,342.47 6,602.74
TAX + + +
20% 25% 30% 32% 35%
OVER OVER OVER OVER OVER
WITHHOLDING TAX TABLE
(ANNEX A of RMC No. 105-17)
WEEKLY
1 2 3 4 5 6
COMPENSATION 4,808 &
LEVEL BELOW 4,808.00 7,692.00 15,385.00 38,462.00 153,846.00
PRESCRIBED
MINIMUM
WITHHOLDING 0 0+ 576.92+ 2,500 + 9,423.08+ 46,346.15+
TAX
20% 25% 30% 32% 35% OVER
OVER OVER OVER OVER
WITHHOLDING TAX TABLE
(ANNEX A of RMC No. 105-17)
SEMI-
MONTHLY
1 2 3 4 5 6
COMPENSATION 10,417 10,417.00
LEVEL & 16,667.00 33,333.0 83,333.0 333,333
BELOW 0 0 .00
PRESCRIBED
MINIMUM
WITHHOLDING 0 0+ 1,250 + 5,416.67 20,416.6 100,416
TAX + 7+ .67+
20% OVER 25% 30% 32% 35%
WITHHOLDING TAX TABLE
(ANNEX A of RMC No.105-17)
MONTHLY
1 2 3 4 5 6
COMPENSATION 20,833 &
LEVEL BELOW 20,833.00 33,333.00 66,667.00 166,667.00 666,667.00
PRESCRIBED MINIMUM
WITHHOLDING TAX 0 0+ 2500+ 10,333.33 1342.47+30 6602.74+
+ % 35%
20% 25% 30% 32% OVER 35% OVER
OVER OVER OVER
ANNUALIZATION OF
WITHHOLDING TAXES OF
OF EMPLOYEES
> Annualization:
- determining the tax due of each employee
for the whole year;
- adjusting the withholding tax to ensure that
at the end of the year :
TAX DUE = TAX WITHHELD
> Annualization is done before the end of the
calendar year but before the payment of
compensation for the last payroll period.
FORMULA FOR YEAR-END
ADJ. OF WITHHOLDING TAX
Gross Compensation Inc. xxx
(past and present employer)
Less: Non-taxable Items
13th Month pay & other benefits xxx
SSS,GSIS, Philhealth, Pag-ibig &
Union dues of individual
Employees xxx
Other non-taxable compensation
Income XXX XXX
NET TAXABLE COMPENSATION INC. XXX
FORMULA FOR YEAR-END
ADJ. OF WITHHOLDING TAX
NET TAXABLE COMPENSATION INC. XXX
TAX DUE: REFER TO ANNUALIZAED TAX
TABLE, SEC. 24A, TAX CODE XXX
Less: Tax Withheld (Jan. to Nov, from
Past and present employer) xxx
AMOUNT TO BE WITHHELD IN DECEMBER /
REFUNDED ON JAN. 25 OF THE
FOLLOWING YEAR XXX
EFFECTS OF YEAR-END
ADJ. OF WITHHOLDING TAX
1)TAX DUE > TAX WITHHELD =
COLLECTIBLES BEFORE PAYMENT OF
LAST SALARY
2) TAX DUE < TAX WITHHELD =
REFUND ON OR BEFORE JAN. 25 OF THE
FOLLOWING YEAR
MONTHLY REMITTANCE RETURN
OF INCOME TAXES WITHHELD
ON COMPENSATION
> BIR Form No. 1601-C (Jan – November)
> For Non-eFPS – on or before the 10th day of the
following month
> For eFPS - 15th day of the Following Month
For December return:
For Non-eFPS – on or before January 15 of the
following year
> For eFPS – January 20
