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MODULE 9
REGULAR INCOME TAXATION

Chapter 8 EXCLUSION FROM GROSS INCOME

Preliminaries:

Module Title: Regular Income Tax: Exclusion from Gross income

Total Learning Time: 1 week

Overview: This chapter discuss the items of income that are excluded from gross income, hence not subject to income
tax under the NIRC. It also includes discussions of other exempt income under special laws, treaties or contracts.

Learning Objectives: At the end of this module, students must be able to demonstrate:
1. Mastery of the list of exclusions from gross income.
2. Comprehension of exclusion conditions or limitations of certain items of income.
3. Knowledge of the list of entities exempt under the NIRC and special laws.
Indicative content:

Discussion:

EXCLUSIONS FROM GROSS INCOME

Exclusions from gross income are income which will not be subject to income tax. They are not included in gross income
subject to regular tax, capital gains tax or final tax.

Items not to be included in gross income and shall be exempt from taxation:

a. Proceeds of life insurance policy

b. Amount received by the insured as a return of premium
c. Gift, bequest, devise or descent
d. Compensation for injuries or sickness
e. Income exempt under treaty
f. Miscellaneous items
1. Income in the Philippines of foreign government or foreign GOCC.
2. Income of the government and its political subdivisions
3. Prizes and awards in recognition of religious, charitable, scientific, educational, artistic, literary or civic
achievements.
4. Prizes and awards in athletic sports competitions
5. Contributions to GSIS, SSS, Philhealth, Pag-Ibig and union dues.
6. Contributions to Personal Equity Retirement Account (PERA)
7. PERA investment income and PERA distributions
8. 13th month pay and other benefits not exceeding P90,000
9. Gains from sale of bonds, debentures, or certificates of indebtedness with maturity of more that 5 years.
10. Gains from redemption of shares of mutual fund.
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OTHER EXEMPT INCOME UNDER THE NIRC AND SPECIAL LAWS

1. Minimum wage and certain benefits of Minimum wage earners

2. Income of Barangay Micro-Business Enterprise (RA 9178)
3. Income of cooperatives (RA 9520)
4. Income of non-stock, non profit entities
5. Income of qualified employee trust funds
6. Business or professional income of self-employed professionals opted to the 8% income tax.

Minimum Wage Earners

A minimum wage earner is an individual recipient of minimum wage as fixed by Regional Tripartite Productivity Board
Wage and Board of the DOLE. A minimum wage earner is exempt from income tax on the minimum wage including
holiday, overtime pay, night differential and hazard pay.

Barangay Micro-Business Enterprise (BMBE)

Is a business entity or enterprise engaged in the production, processing or manufacturing of products or commodities,
including agro-processing, trading and services whose total assets including those arising from loans but exclusive of
Land on which the particular business entity’s office, plant and equipment are situated, do not exceed P3,000,000.

QUAIFICATIONS OF EXEMPTION OF EXEMPT ENTITIES

INCOME OF SELF EMPLOYED OR PROFESSIONALS WHO OPTED TO BE TAXED AT 8% INCOME TAX

INCOME SUBJECT TO FINAL TAX OR CAPITAL GAINS TAX

EXCLUSIONS VS DEDUCTIONS

Exclusions are those NOT included in the reportable gross income while deductions is initially included in the gross
income but are separately presented as deductions against gross income in the income tax return.

Note to Students:

Exclusion in gross income represents one of the exceptions to the general scope of the regular income tax. Students are
advised to master or, at least familiarize themselves with the list and their respective exclusion criteria before
proceeding to the next chapters.
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References:
Income Taxation 2019 OBE Edition, Rex B. Banggawan, CPA, MBA
Income Taxation 2019 issue-17th Edition, Win Ballada, CPA,CBE,MBA
Susan Ballada, CPA
National Internal Revenue Code (NIRC)
Website:
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