Individual Income Tax

Individual Income Taxation
Section 24, NIRC A B C/D
Taxpayer/Tax base Basic (Regular, Ordinary,

Final Income Tax Capital Gains Tax
(subject to situs of taxation) Net) Income Tax
RC, NRC, RA, NRETB

Pure Compensation Income A1. Compensation Income (without
Earner deductions) subject to 20-35% 10% on certain royalty fees,
15% on capital gain on the sale of
dividends
shares of stocks not traded in PSE
A2. Taxable Income subject to 20-
Professional/ Business 20% on interests, royalties, prizes,
35% or 8% Optional Gross Income 6% on presumed gain on the sale
Income Earner and winnings (and dividends for
Tax of real property
NRAETB)
Mixed Income Earner A1 + A2
15% on capital gain on the sale of

Non-Resident Alien Not shares of stocks not traded in PSE
Engaged in Trade or 25% of Gross Income 25% of Gross Income
Business 6% on presumed gain on the sale
of real property
Taxpayers, Tax Base, and Situs
Income Taxation Situs of Income
NIT OGIT FIT CGT Within Without
Resident Citizen
Non-resident citizen
Resident Alien
Non-resident alien engaged in trade

or business
Non-resident alien not engaged in

25% of Gross Income
trade or business
Basic Income Tax
Active income and all other income not specifically subject to final tax
and capital gains tax are subject to Section 24 (A), specifically:
Graduated Income Tax Rates

8% Optional Gross Income Tax
Tax Schedule Effective
January 1, 2018 until December 31, 2022
Range of Taxable Income Tax Due = a + (b x c)

Over Not Over Basic Amount Additional Rate of Excess Over
(a) (b) (c)
- 250,000 -
250,000 400,000 - 20% 250,000
400,000 800,000 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 - 2,410,000 35% 8,000,000
Tax Schedule Effective January 1, 2023
Range of Taxable Income Tax Due = a + (b x c)
Over Not Over Basic Amount Additional Rate of Excess Over
(a) (b) (c)
- 250,000 -
250,000 400,000 - 15% 250,000
400,000 800,000 22,500 20% 400,000
800,000 2,000,000 102,500 25% 800,000
2,000,000 8,000,000 402,500 30% 2,000,000
8,000,000 - 2,202,500 35% 8,000,000
Final Tax on Certain Passive Income
Certain passive income is subject to final income tax under the
withholding tax system. Requisites are as follows:
Derived from sources within

Passive income
Specifically provided in the NIRC
Not exempted
Not an exclusion
Capital Gains Tax
Capital Gains Tax is a tax imposed on the gains presumed to have been
realized by the seller from the sale, exchange, or other disposition of
capital assets located in the Philippines, including pacto de retro sales
and other forms of conditional sale.
This is also subject to withholding of final tax [Section 57 (A)].

Income Tax Due on
Compensation Income
Compensation Income
Taxpayer Tax Rate Tax Base
Compensation income earner

20% - 35
Taxable compensation
(Resident Citizen, Non-Resident Citizen, Resident
8% is Income
Alien, Non-Resident Alien Engaged in Trade or
NOT APPLICABLE
Business)
Non-Resident Alien not engaged in trade or business 25% Gross Income
Minimum Wage Earners -
Taxable compensation
Special Aliens 20-35%
income
Aliens employed by POGO (R.A. 11590) 25% Gross Income

Computation of Income Tax Due
Mr. A has taxable compensation income of P250,000. Compute his
income tax liability.
Mr. A has taxable compensation income of P250,000. Compute his
P0. Compensation Income of P250,000 and below is tax exempt.

Mr. B has taxable compensation income of P350,000. Compute his
Computation Tax Due

First P250,000 See bracket over P250,000 but not over P400,000 P0
Next 100,000 (P350,000 250,000) x 20% 20,000
Total 350,000 Income Tax Due P20,000
P100,000 x 20,000
20%
Mr. C has taxable compensation income of P600,000. Compute his
Computation Tax Due

First P400,000 See bracket over P400,000 but not over P800,000 P30,000
Next 200,000 (P600,000 400,000) x 25% 50,000
Total 600,000 Income Tax Due P80,000
P200,000 x P80,000
25%
Mr. D has taxable compensation income of P1,000,000. Compute his
Computation Tax Due

First P800,000 See bracket over P800,000 but not over P2,000,000 P130,000
Next 200,000 (P1,000,000 800,000) x 30% 60,000
Total 1,000,000 Income Tax Due P190,000
P200,000 x P190,000
30%
Mr. E has taxable compensation income of P7,000,000. Compute his
Computation Tax Due

First P2,000,000 See bracket over P2,000,000 but not over P8,000,000 P490,000
Next 5,000,000 (P7,000,000 2,000,000) x 32% 1,600,000
Total 7,000,000 Income Tax Due P2,090,000
P5,000,000 x P2,090,000
32%
Mr. F has taxable compensation income of P10,000,000. Compute his
Computation Tax Due

First P8,000,000 See bracket over P8,000,000 P2,410,000
Next 2,000,000 (P10,000,000 8,000,000) x 35% 700,000
Total 10,000,000 Income Tax Due P3,110,000
P2,000,000 x P3,110,000
35%
Non-Resident Citizen
Ms. G is an OFW. She works in China as COVID Vaccine specialist. She
earns compensation income of P5,000,000 per year. How much is her
income tax due to the Philippine Government.
P0. A non-resident citizen/OCW is not taxable on income earned

abroad.
Resident Alien
(also applicable to non-resident alien engaged in trade or business)
Ms. Z is a Malaysian. He went to the Philippines as a manager of a BPO

company. Moreover, she has a business in her home country. As a
manager in the Philippines, she earns taxable compensation income of
P6 million per year. Her business in Malaysia earned P3 million
equivalent. How much is her income tax liability to the Philippine
Government.
Computation Tax Due
Next 4,000,000 (P6,000,000 2,000,000) x 32% 1,280,000
Total P6,000,000 Income Tax Due P1,770,000
Non-Resident Alien
(not engaged in trade or business)
Mr. F, a nonresident alien was seconded to HHH Inc., a domestic

corporation in Makati, for three months. During his stay, he earned
P250,000. How much is his income tax liability?
= 250,000 x 25%
= 62,500
Minimum Wage Earners
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.
Mr. C, a minimum wage earner, works for G Corp. He is not engaged in
business nor has any other source of income other than his
employment. For 2017, Mr. C earned a total compensation income of
P215,000 including contribution to the SSS, Philhealth, and
HDMF amounting to P5,000 and 13th month pay of P10,000.
Compute his taxable income and income tax liability.

Total Compensation Income P215,000
Less: Mandatory contributions P5,000
Non-taxable benefits 10,000 15,000
Statutory minimum wage 200,000
Taxable Income -
Income Tax Due -
Mr. C is exempt since he is considered a minimum income earner.

The following year, Mr. C, a minimum wage earner, earned, aside from
his basic wage, additional pay of P140,000 which consists of the
overtime pay P80,000, night shift differential P30,000, hazard pay
P30,000.
Compute his taxable income and income tax liability.

Total Compensation (P215,000 + 140,000) P355,000
Less: Mandatory contributions P5,000
Non-taxable benefits 10,000 15,000
Statutory minimum wage and Overtime, night
shift differential, hazard, and holiday pay
(P200,000 + 140,000) 340,000
Taxable Income -
Income Tax Due 1. -
The statutory minimum wage as well as the holiday pay, overtime pay, night shift
differential pay and hazard pay received by such MWE are specifically likewise
exempted from income tax under law.
Mr. W earns an annual minimum wage of P200,000. In addition, he received the
following during the taxable year:
Overtime pay, P150,000

Hazard Pay, P60,000
Holiday Pay, P75,000
Night shift differential pay, P180,00
13th-month pay, bonuses, incentive pay, P100,000
De-minimis benefits exempt from income tax, P17,000
Interest income from bank deposit including the final tax, P5,000
How much is his taxable income (income that will be subjected to graduated
income tax rates) and the corresponding income tax due?
Statutory Minimum Wage P200,000
13th-month pay, bonuses, incentive pay 100,000
De minimis benefits exempt from income tax 17,000
Overtime, night shift differential, hazard, and holiday pay 465,000
Total Income P782,000
De minimis benefits exempt from income tax 17,000
Less: Statutory Minimum Wage P200,000
Overtime, night shift differential, hazard, and holiday 465,000
pay
De-minimis benefits exempt from income tax 17,000 772,000
De-minimis benefits exempt from income tax 17,000
pay
Subject to graduated income tax rates P10,000
Income Tax Due 0
De-minimis benefits exempt from income tax 17,000
pay
Subject to graduated income tax rates P10,000
Income Tax Due 0
Special Aliens
The preferential income tax rate shall no longer be applicable without
prejudice to the application of preferential tax rates under existing
international treaties, if warranted.
All concerned employees of the regional or area headquarters and

regional operating headquarters of multinational companies, offshore
banking units and petroleum service contractor and subcontractors
shall be subject to the regular income tax rate under Section
24(A)(2)(a), NIRC>
Special Aliens
Ms. CCF, an alien employed in MCUD Corporation that is Petroleum
Service Contractor, received compensation income of P5 million for
2020, inclusive of P400,000 13th month pay and other benefits. How
much is the taxable compensation income and income tax due.
Compensation Income P5,000,000

Less: Non-taxable 13th Month Pay and other benefits (max) 90,000
Taxable Compensation Income P4,910,000
Special Aliens
Ms. CCF, an alien employed in MCUD Corporation that is Petroleum
Service Contractor, received compensation income of P5 million for
2020, inclusive of P400,000 13th month pay and other benefits. How
much is the taxable compensation income and income tax due.
Computation Tax Due

Next 2,910,000 (P4,910,000 2,000,000) x 32% 931,200
Total P4,910,000 Income Tax Due P1,421,200
Alien Employees of POGOs
Alien individuals employed (regardless of residency) and assigned to the
Philippines by an offshore gaming licensee or its service providers must pay a final
withholding tax of 25% on gross income.
Provided, however, That the minimum final withholding tax due for any taxable
month from said person shall not be lower than Twelve thousand five hundred
pesos (P12,500.00). They shall also secure a Tax Identification Number (TIN).
Sec. 25 (G), NIRC. (as amended by Sec. 3, Republic Act 11590)
Income Tax Due on
Professional/Business and
Other Income
Professional/Business and Other Income
Taxpayer Tax Rate Tax Base
20 - 35% Taxable Income

Professionals/Self-employed
(Resident Citizen, Non-Resident Citizen, Resident Gross Sales/Receipts and

Alien, Non-Resident Alien Engaged in Trade or other non-operating
8%
Business) income in excess of
P250,000
Non-Resident Alien not engaged in trade or

25% Gross Income
business
(Subject to Basic Income Tax)
Professional income Fees by a profession
Business income Any income derived from doing business
Gains derived from dealings in Ordinary gains

property Other capital gains
earned abroad by a resident citizen or

Interests
earned as active business income
Rent Income from leasing real/personal property
earned abroad by a resident citizen or

Royalties
earned as active business income
(Subject to Basic Income Tax)
Liquidating dividends in excess of invested capital

Dividends Dividends derived from sources without earned by a resident citizen
Dividends from foreign corporations
Annuities Periodic instalment payments of income
Prizes 10,000 and below

Prizes
Prizes received by a resident citizen abroad
Pensions Payment for past employment services rendered
Partner's distributive share from

the net income of the general
professional partnership.
Income Tax Due
Ms. D is a Certified Public Accountant. In 2021, she had the following data:
Gross receipts, P2,900,000

Cost of service, P300,000
Business Expense, P200,000
Capital Gains on the sale of a personal car (holding period is 5 years), P100,000
Personal Expenses, P100,000
Capital gains on sales of shares of PLDT directly to the buyer, P500,000
How much is her income tax due for the taxable year 2021?
Income Tax Due
1. Determine the tax base
Gross Receipts Taxable Income
Gross receipts, P2,900,000 P2,900,000 P2,900,000
Cost of service, P300,000 - (300,000)
Business Expense, P200,000 - (200,000)
Capital Gains on the sale of a personal car (holding period is 5 years), 50,000 50,000
P100,000
Personal Expenses, P100,000 -
Capital gains on sales of shares of PLDT directly to the buyer, P500,000 -
P2,950,000 P2,450,000
Income Tax Due
2. Compute the income tax due
Gross receipts, P2,900,000 P2,900,000 P2,900,000
Cost of service, P300,000 - (300,000)
Business Expense, P200,000 - (200,000)
Capital Gains on the sale of a personal car (holding period is 5 years), 50,000 50,000
P100,000
Personal Expenses, P100,000 -
Capital gains on sales of shares of PLDT directly to the buyer, P500,000 -
P2,950,000 P2,450,000
Income Tax Due at 20 - 35% P634,000
Income Tax Due at 8% (2,950,000 250,000) x 8% P216,000
Tax Avoidance Scheme
In 2020, Miss Peregrine earned P2,200,000 from the practice of her
profession as a Certified Public Accountant. She, then, incurred
P1,500,000 operating expenses during the taxable year.
How much income tax due should she pay to the BIR in line with tax
avoidance?
Tax Avoidance Scheme
Professional fee P2,200,000 P2,200,000
Operating expenses - (1,500,000)
P2,200,000 P700,000
Income Tax Due at 20 - 35% P105,000
Income Tax Due at 8% (2,200,000 250,000) x 8% P156,000

Optional Gross Income Tax of 8%
Individuals earning income from self-employment and/or practice of
profession whose gross sales/receipts and other non-operating income
does not exceed the VAT threshold (P3,000,000) shall have the option
to avail of
Graduated income tax rates

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 under Section 24(A) and the
percentage tax under Section 116 all under the Tax Code, as amended.
Self-employed/Professionals who are qualified and have availed of the
8% income tax rate are:
Required to file quarterly and annual income tax returns without

submission of the financial statement;
Not required to file quarterly percentage tax return;
Required to signify the intention to avail the 8% IT rate every taxable
year; and
Maintain books of accounts and issue receipt/invoices.
Ms. E operates a convenience store while she offers bookkeeping
services to her clients. In 2020, her gross sales amounted to
P800,000.00, in addition to her receipts from bookkeeping services of
P300,000.00. She already signified her intention to be taxed at 8%
income tax rate in her 1st quarter return.
Gross Sales Convenience Store P800,000
Gross Receipts Bookkeeping 300,000
Total Sales/Receipts P1,100,000
Income Tax Due

Total Sales/Receipts 1,100,000
Exempt (250,000)
Amount in excess of P250,000 P850,000
Optional Gross Income Tax 8%
Income Tax Due P68,000
The total of gross sales and gross receipts is below the VAT threshold of
P3,000,000.00.
Taxpayer's source of income is purely from self-employment, thus she is
entitled to the amount allowed as deduction of P250,000.00 under Sec. 24
(A) (2) (b) of the Tax Code, as amended.
Income tax imposed herein is based on the total of gross sales and gross
receipts.
Income tax payment is in lieu of the graduated income tax rates under
subsection (A) hereof and percentage tax due, by express provision of law.
Requisites to Avail the 8%
Individuals (i.e., single proprietors, professionals and mixed income
earners) earning from self-employment/business and/or practice of
profession;
Taxpayers whose gross sales/receipts and other non-operating
income did not exceed P3M during the taxable year;
Must be registered and subjected only to percentage tax or is
exempt from VAT/other percentages; and
Must have signified the intention to elect the 8% thru any of those
enumerated under Sec. II(7) of this RMO (under item g below).
When 8% is unavailable?
Purely compensation income earners;
VAT-registered taxpayers, regardless of the amount of gross
sales/receipts and other non-operating income;
Taxpayers exempt from VAT or other percentage taxes whose gross
sales/receipts and other non-operating income exceeded P3M
during the taxable year;
When 8% is unavailable?
Taxpayers subject to Other Percentage Taxes under Title V of the Tax
Code, as amended;
Partners of a General Professional Partnership (share in distributable
net income); and
Individuals enjoying Income Tax exemption (e.g., Barangay Micro
Business Enterprises).
Availment of 8%
The availment of the 8% income tax rate option is required to be
signified every taxable year. Otherwise, the taxpayer shall be
considered as having availed of the graduated rates.
Such election shall be irrevocable, and no amendment of option shall

be made for the said taxable year.
How to elect 8%
New Business Registrant Existing Individual Business Taxpayers
Upon registration (using BIR Forms No. 1901 File BIR Form No. 1905 at the beginning of the
and/or 1701Q); or taxable year to end-date the form type of
quarterly percentage tax provided that the
On the initial quarter return (BIR Forms No. option to avail the 8% IT shall be selected in
2551Q and/or 1701Q) of the taxable year the initial 1701Q; or
after the commencement of a new
business/practice of profession. 1st Quarterly Percentage Tax Return; and/or
1st Quarterly Income Tax Return.

Certificate of Registration
If the taxpayer is VAT-registered and wishes to avail of the 8% tax, he
must cancel his VAT registration no later than April 30, 2018. The
taxpayer must submit his registration update form to the BIR and
surrender his unused VAT invoices and receipts.
Failure to Avail 8%
Assuming Ms. E failed to signify her intention to be taxed at 8% income
tax rate on gross sales in her initial Quarterly Income Tax Return, and
she incurred cost of sales and operating expenses amounting to
P600,000.00 and P200,000.00, respectively, or a total of P800,000.00.
Compute the income tax due.
Failure to Avail 8%
Gross Sales/Receipts P1,100,000
Less: Cost of Sales 600,000
Gross Income P500,000
Less: Operating Expenses 200,000
Taxable Income P300,000
Failure to Avail 8%
First P250,00 See bracket over P250,000 but not over P400,000 P0
Next 50,000 (P300,000 250,000) x 20% 10,000
Total P300,000 Income Tax Due P10,000
Aside from income tax, Ms. E is likewise to pay business tax.
Subject to Other Percentage Tax (Sec. 125)
Mr. X owns a nightclub and videoke bar, with gross sales/receipts of
P2,500,000. His cost of sales and operating expenses are P1,000,000
and P600,000, respectively, and with non-operating income of
P100,000.
Gross Receipts P2,500,000
Less: Cost of Service 1,000,000
Gross Income P1,500,000
Net Income from Operation P900,000
Add: Non-operating Income 100,000
Taxable Income P1,000,000
Next 200,000 (P1,000,000 800,000) x 30% 60,000
Total P1,000,000 Income Tax Due P190,000
The taxpayer has no option to avail of the 8% income tax rate on his income from business since his
business income is subject to Other Percentage Tax under Section 125 of the Tax Code, as amended.
Aside from income tax, taxpayer is liable to pay the prescribed tax, which in this case is percentage
tax of 18% on the gross receipts.
Breach of VAT Threshold
A taxpayer shall automatically be subject to the graduated rates even if
the flat 8% income tax rate option is initially selected, when
gross sales/receipts and other non-operating income exceed the VAT
Threshold during the taxable year.
He is also subject to applicable business tax, if any.

Ms. P is a prominent independent contractor who offers architectural
and engineering services. Since her career flourished, her total gross
receipts amounted to P4,250,000 for taxable year 2020. Her recorded
cost of service and operating expenses were P2,150,000 and
P1,000,000, respectively. Compute her income tax liability.
Less: Operating Expenses 1,000,000
Next 300,000 (P1,100,000 800,000) x 30% 90,000
She cannot avail the 8% optional gross income tax because her gross receipts exceeded the VAT
threshold of P3,000,000. She is then subject to graduated income tax rates. She is also liable to pay
Value Added Tax in addition to income tax.
(Mid of Taxable Year)
Mr. J signified his intention to be taxed at 8% income tax rate on gross

sales in his Q1 Income Tax Return. He has no other source of income.
His total sales for the first three quarters amounted to P3,000,000. His
Q4 sales amounted to P3,500,000.
Self-Employed/Professional
Q1 Q2 Q3 Q4
8% 8% 8%
Total Sales P500,000 P500,000 P2,000,000 P3,500,000
Cost of Sales 300,000 300,000 1,200,000 1,200,00
Gross Income P200,000 P200,000 P800,000 P2,300,000
OPEX 120,000 120,000 480,000 720,000
Taxable Income P80,000 P80,000 P320,000 P1,580,000
Total Sales P6,500,000

Next 60,000 (P2,060,000 2,000,000) x 32% 19,200
Total P2,060,000 Income Tax Due (annual) P509,200
Income Tax Payments (3,000,000 250,000) x 8% (220,000)
Income Tax Payable P289,200
The gross receipts exceeds the VAT threshold of P3,000,000.

Taxpayer shall be liable to pay income tax under graduate rates
pursuant to Section (A)(2)(a) of the Tax Code, as amended.
Taxpayer shall be allowed an income tax credit of quarterly

payments initially made under the 8% income tax option computed
net of the allowable deduction of P250,000 granted for purely
business income.
Taxpayer is likewise liable for business tax, in addition to income tax. For
this purpose, the taxpayer is required to update his registration from non-
VAT to VAT taxpayer. Percentage tax pursuant to Section 116 of the Tax
Code, as amended, shall be imposed from the beginning of the year until
taxpayer is liable to VAT. VAT shall be imposed prospectively.
Percentage tax due on the non-VAT portion of the sales/receipts shall be

collected without penalty, if timely paid on the due date immediately
following the month/quarter when taxpayer ceases to be a non-VAT.
Ms. K, is a partner of CCF & Co., a general professional partnership and
owns 25% interest. The gross receipts of CCG & Co. amounted to P10
million for taxable year 2018. The recorded costs of service and
operating expenses of CCF & Co. were P2,750,000 and P1,500,000,
respectively.
How much is the income tax due of Ms. K?

Net Income for distribution to partners P5,750,000
25%
1,437,500
There is no income tax liability for CCF & CO. being a GPP. But it is liable to business
tax.
Next 637,500 (P1,437,500 P800,000) x 20% 191,250
Individual Partner is not allowed any deduction on his distributive share since this is
already net of costs and expenses.
Taxpayer is not allowed to avail of the 8% income tax rate option since here
distributive share from GPP is already net of costs and expenses.
Non-Resident Alien Not Engaged in Trade or Business
Mr. N, a non-resident alien not engaged in trade or business, has a

gross receipt of P2,500,000 during the taxable year. One-fifth of such
receipt was earned within the Philippines during his stay herein for 143
days. Compute his income tax liability.
= gross receipts (within) x 25%

= 2,500,000 / 5 x 25%
= P125,000
Income Tax Due on
Mixed Income
Mixed Income Earner
An individual earning compensation income from employment and
income from business, practice of profession and/or other sources
aside from employment.
Taxation
Compensation Income Shall be subject to graduated tax rates
Income from Business Graduated Income Tax Rates; or

or Practice of Profession 8% income tax rate based on gross sales/receipts and
other non-operating income (in excess of P250,000) in
lieu of the graduated income tax rates and percentage
tax
In Excess of P250,000
The P250,000 exemption is not applicable to mixed income earners
since it is already incorporated in the first tier of the graduated income
tax rates applicable to compensation income.
Income Tax Due
Graduated Income Tax Rates Graduated Income Tax Rates
+ 8% Income Tax in Both Types of Income
Total tax due shall be the sum of
Mixed income earner who opted to be taxed
1. Tax due from compensation, computed using
under the graduated income tax rates for income
the graduated income tax rates
from business/practice of profession, shall
combined the taxable income from both
2. Tax due from self-employment/practice of
compensation and business/practice of
profession, resulting from multiplication of
profession in computing for the total taxable
the 8% tax rate with the total of the gross
income and consequently, the income tax due.
sales/receipt and other non-operating
income.
Graduated Income Tax Rates + 8% Income Tax
Mr. M, a Financial Comptroller of J Company, earned annual
compensation in 2018 of P1,500,000.00, inclusive of 13th month and
other benefits in the amount of P120,000.00 but net of mandatory
contributions to SSS and Philhealth. Aside from employment income,
he owns a convenience store, with gross sales of P2,400,000. His cost
of sales and operating expenses are P1,000,000.00 and P600,000.00,
respectively, and with non-operating income of P100,000.00. Compute
his income tax liability if he opted to be taxed at 8% on his income from
business.
respectively, and with non-operating income of P100,000.00. Compute
his income tax liability if he opted to be taxed at 8% on his income from
business.
1. Compute Taxable Compensation Income
Total Compensation P1,500,000
Less: Non-Taxable 13th month pay and other benefits 90,000

2. Compute Income Tax Due on Compensation
Next 610,000 (P1,410,000 800,000) x 30% 183,000

respectively, and with non-operating income of P100,000.00.
Compute his income tax liability if he opted to be taxed at 8% on his
income from business.
3. Compute Income Tax Due on Business Income
Taxable Business Income (P2,400,000 + P100,000) P2,500,000

Optional Gross Income Tax 8%
Tax Due on Business Income P200,000
4. Total Income Tax Due
On Compensation P313,000
On Business Income 200,000
Total P513,000
The option of 8% income tax rate is applicable only to income from
business, and the same is in lieu of the income tax under the graduated income
tax rates and the percentage under Section 116 of the Tax Code, as amended.
The amount of P250,000 allowed as deduction under the law for taxpayers
earning solely from self-employed/practice of profession is not applicable to
mixed income earner under the 8% income tax rate option. The same is
deemed incorporated in the first tier of the graduated income tax rates
applicable to compensation income.
Graduated Income Tax Rates
(in both types of income)
Assuming Mr. M did not opt for the 8% income tax based on gross
sales/receipts and other non-operating income. Compute his income
tax liability.
1. Compute Total Taxable Income
Add: Taxable Income from Business
Gross Sales P2,400,000
Less: Cost of Sales 1,000,000
Add: Non-Operating Income 100,000 900,000
Add: Taxable Income from Business
Gross Sales P2,400,000
Less: Cost of Sales 1,000,000
Add: Non-Operating Income 100,000 900,000
Total Taxable Income P2,310,000
2. Compute Income Tax Due
Next 310,000 (P2,310,000 2,000,000) x 32% 99,200
The taxable income from both compensation and business shall be combined
for purposes of computing the income tax due if the taxpayer chose to be
subject under graduated income tax rates.
In addition to the income tax, Mr. M is likewise liable to pay percentage tax of
P72,000, which is 3% of P2,400,000
Final Tax on Certain
Passive Incomes
Final Tax on Interest Income
RC, NRC, and
Passive Income NRAETB NRANETB
RA
Interest from any currency bank deposit, yield or any

other monetary benefit from deposit substitutes, trust 20% 20% 25%
funds and similar arrangements
15%
Interest under the expanded foreign currency deposit
(NRC, Exempt Exempt
system
Exempt)
Mr. A earned the following:
Interest income from bank deposit, Philippines, P100,000

Interest income from bank deposit, USA, P150,000
How much is the final income tax due on the interest?
= interest income x 20%

= P100,000 x 20%
= P20,000
When Mr. N checked his bank statement, he noticed that he received
P80,000 interest income from BPI as shown on the net amount added
to his account. How much is the final tax withheld by the bank from
such interest income?
= interest income x 20%

= interest received / (1-20%) x 20%
= P80,000/80% x 20%
= P100,000 x 20%
= P20,000
Mr. E is a non-resident alien. During his 3-month stay in the Philippines,
he earned P100,000 from interest on bank deposits. How much is his
income tax due?
= P100,000 x 25%
= P25,000
Deposit Substitute
The term 'deposit substitutes' shall mean an alternative from of
obtaining funds from the public other than deposits, through the
issuance, endorsement, or acceptance of debt instruments for the
borrowers own account, for the purpose of relending or purchasing of
receivables and other obligations, or financing their own needs or the
needs of their agent or dealer.
The term 'public' means borrowing from twenty (20) or more individual
or corporate lenders at any one time.
Deposit Substitute
bankers' acceptances,
promissory notes,
repurchase agreements, including reverse repurchase agreements
entered into by and between the Bangko Sentral ng Pilipinas (BSP)
and any authorized agent bank,
certificates of assignment or participation and
similar instruments with recourse
Not Deposit Substitute
Debt instruments issued for interbank call loans with maturity of not
more than five (5) days to cover deficiency in reserves against deposit
liabilities, including those between or among banks and quasi-banks,
shall not be considered as deposit substitute debt instruments.
Implications of Deposit Substitute
If funds are simultaneously obtained from 20 or more
lenders/investors, there is deemed to be a public borrowing and the
bonds at that point in time are deemed deposit substitutes.
Consequently, the seller is required to withhold the 20% final
withholding tax on the imputed interest income from the bonds.
For debt instruments that are not deposit substitutes, regular income
tax applies.
Interest Income under EFCDS
Interest income derived from a depositary bank under the expanded
foreign currency deposit system is subject to 15% Final Withholding Tax
if received by
a. Resident Citizens
b. Resident Aliens
c. Domestic Corporations
Expanded Foreign Currency Deposit
Expanded Foreign Currency Deposit Unit shall refer to a unit of a local
bank or of a local branch of a foreign bank authorized by the BSP to
engage in foreign currency-denominated transactions, pursuant to the
provisions of Republic Act No. 6426, as amended.
Treatment of Joint Accounts under Expanded
Foreign Currency Deposit
If a bank account is jointly in the name of a non-resident citizen such as
overseas contract worker, or Filipino seaman, and his/her spouse or
dependent who is a resident in the Philippines, how should the Final
Tax be computed?
Treatment of Joint Accounts under Expanded
Foreign Currency Deposit
If a bank account is jointly in the name of a non-resident citizen such as
overseas contract worker, or Filipino seaman, and his/her spouse or
dependent who is a resident in the Philippines, how should the Final
Tax be computed?
50% of the interest income from such bank deposit shall be treated as
exempt while the other 50% shall be subject to FWT of 15%
Exempt Interest Income
RC, NRC,
and RA
On long-term deposit or investment certificates (LTDIC) in
banks (e.g., savings, common or individual trust funds,
Exempt Exempt 25%
deposit substitutes, investment management accounts and
other investments, which have maturity of 5 years or more)
If pre-terminated before the 5th year, a final tax shall be
imposed on the entire income
4 years to less than 5 years 5% 5% 25%
less than 3 years 20% 20% 25%
Exempt Interest Income
Interest income from long-term deposit or investment in the form of
savings, common or individual trust funds, deposit substitutes,
investment management accounts, and other investments evidenced
by certificates in such form prescribed by the Bangko Sentral ng
Pilipinas.
Long-term deposit or investment certificates
The term 'long-term deposit or investment certificates' shall refer to
certificate of time deposit or investment in the form of savings,
common or individual trust funds, deposit substitutes, investment
management accounts and other investments with a maturity period of
not less than five (5) years, the form of which shall be prescribed by the
Bangko Sentral ng Pilipinas (BSP) and issued by banks only (not by
nonbank financial intermediaries and finance companies) to individuals
in denominations of Ten thousand pesos (P10,000) and other
denominations as may be prescribed by the BSP.
Pre-termination Subject to FIT
A final tax shall be imposed on the entire income and shall be deducted
and withheld by the depositary bank from the proceeds of the long-
term deposit or investment certificate based on the remaining
maturity:
RC, NRC,
and RA
If pre-terminated before the 5th year, a final tax shall be
imposed on the entire income
less than 3 years 20% 20% 25%
Pre-termination Subject to FIT
B invested P5,000,000 on long-term time deposits and earns 10% per
year with a maturity of 6 years. After 3 years and a half, B needed the
money. He pre-terminated the investments and received P5,500,000
plus interest. How much is his income tax liability arising from this
investment?
Interest Income (5,000,000 x 10% x 3.5) P1,750,000

Gain on pre-termination (P5,500,000 5,000,000) 500,000
Total Income P2,250,000
Rate 12%
Final Tax P270,000
Final Tax on Royalties
RC, NRC,
and RA
Royalties, in general 20% 20% 25%
Royalties on books as well as other literary

10% 10% 25%
works and musical compositions
Mr. Mellow is a composer of top hit songs during the pandemic. In
2020, he earned P10,000,000 royalty fees. How much is the final tax on
these royalty fees?
= P10,000,000 x 10%
= P1,000,000
Mr. F is a non-resident alien who went to the Philippines for a 2-day
trip. During his stay in the Philippines, he earned P800,000 royalty
income on his books. How much is his final income tax due?
= P800,000 x 25%
= P200,000
Royalties Subject to Basic Income Tax
Mr. H writes various novels, then usually sells his copyright over these
novels to another person. In one occasion, Mr. H sold one of his novels
to J Corp. for P10,000,000. How much is the final tax from this
transaction?
P0
Final Tax on Dividends
RC, NRC, and

RA
Cash/Property from a Domestic Corporation, etc. 10% 20% 25%
Share of an individual in the distributable net income

after tax of a PARTNERSHIP (other than a general 10% 20% 25%
professional partnership)
Ms. Marites, a resident citizen, owns 1,000,000 shares in MWC, Inc. In
2021, MWC declared P2/share cash dividends, during which the fair
market value of the shares is P1/share. How much is the final tax on the
dividends?
= 1,000,000 shares x P2 dividends/share x 10% final tax

= P2,000,000 x 10%
= P200,000
Ms. Mariah, a non-resident alien not engaged in trade or business,
owns 1,000,000 shares in MWC, Inc. In 2021, MWC declared 20% stock
dividends, during which the fair market value of the shares is P1/share.
How much is the final tax on the dividends?
P0
Net Income of a Partnership
Taxable income declared by a partnership for a taxable year which is
subject to tax under Section 27(A) of the NIRC, after deducting the
corporate income tax imposed,
shall be deemed to have been actually or constructively received by

the partners in the same taxable year and
shall be taxed to them in their individual capacity, whether actually

distributed or not.
Z is a business partner in XYZ Partnership, which is engaged in trading
business. The three partners divide the profit equally. In 2020, the
partnership earned P9,000,000, but instead of distributing the income
to partners, it invested the amount to a 7-year deposit substitute
issued by banks. How much is the income tax of Z in 2020?
= 9,000,000/3 x 10%
= 3,000,000 x 10%
= 300,000
Assuming the partnership is a general professional partnership, how
much is the income tax liability of Z?
Next 1,000,000 (P3,000,000 2,000,000) x 32% 320,000
Final Tax on Prizes and Winnings
RC, NRC, and
RA
Prizes exceeding 10,000 20% 20% 25%
Prizes 10,000 and below Sec. 24(A) Sec. 24(A) 25%
Other winnings (except PCSO and Lotto winning not

20% 20% 25%
exceeding P10,000)
PCSO and Lotto winnings not exceeding P10,000 Exempt Exempt 25%
PCSO and Lotto winnings exceeding P10,000 20% 20% 25%

Prizes and Awards on Achievements
Prizes and awards made primarily in recognition of religious, charitable,
scientific, educational, artistic, literary or civic achievements are
EXCLUSIONS from gross income if:
The recipient was selected without any action on his part to enter a contest or
proceedings; and
The recipient is not required to render substantial future services as a condition to

receiving the prize or award.
Prizes and Awards on Achievements
Mr. C made a thorough research about COVID. He was then able to
create an enhanced version of Vitamin C that could deactivate COVID-
19 virus. Because of his contribution in the field of pandemic control,
he was awarded by a non-governmental institution a certificate
recognizing his talent and dedication. He was also given P1,000,000
with expectation that he would continue his work. How much is the
final tax due?
P0
Prizes and Awards in Sports Competition
Prizes and awards granted to athletes in local and international sports
competitions and tournaments held in the Philippines and abroad and
sanctioned by their national associations shall be EXEMPT from income
tax.
The cash rewards of informers shall be subject to final income tax
collected as a final withholding tax, at a rate of ten percent (Section
282). The reward pertains to persons instrumental in the following
cases:
Discovery of Violations of the National Internal Revenue Code

Discovery and Seizure of Smuggled Goods
Non-Resident Aliens Not Engaged in Trade or Business
Except for the taxation on capital gains, NRANETB shall pay 25% upon
the entire income received from all sources within the Philippines.
Non-Resident Aliens Not Engaged in Trade or Business
Mr. F is a non-resident alien who went to the Philippines for a 2-day

trip. During his stay in the Philippines, he earned P500,000 royalty
income on his books. How much is his income tax due?
= P500,000 x 25%
= P125,000
Capital Gains Tax
Capital Gains Tax
RC, NRC, and

RA
Capital gains from sale of shares of stock of a Philippine

15% 15% 15%
corporation not traded in the stock exchange.
Capital gains from sale of real property situated in the

6% 6% 6%
Philippines
Sale of Shares Not Traded through PSE
Mr. K purchased 1,000 unlisted shares of P Corp. amounting to
P1,500,000. After 6 months, he sold these shares at P2,500,000.
Compute the income tax liability.
Selling Price P2,500,00

Less: Cost 1,500,000
Net Capital Gain 1,000,000
Rate 15%
Capital Gains Tax P150,000
Mr. X sold his shares of stock in PLDT, Inc. through a broker that trades
in Philippine Stock Exchange for P1 million. The cost of the stock is
P500,000. How much is the capital gains tax on the sale?
P0
Mr. E bought shares of stock of Manila Water Company in 1997 at a cost of
P200,000. He donated these shares to Mr. A on January 1, 2018, during which time,
the fair market value of the shares is P2,000,000. Upon donation, Mr. E paid the
corresponding donor's tax. On January 1, 2020, Mr. A sold the shares for
P3,000,000. How much is the income tax arising from the sale?

Less: Cost (value at the hands of the donor) 200,000
Rate 15%
Mr. K sold his shares of stocks in a publicly-listed company for P8 million. The sale
was made directly to the buyer. The stocks were purchased for P3 million. The
value of the shares of stocks at the time of the sale was as follows:
The closing price based on the report of the PSE, P9 million

The books value based on the audited financial statements, P6 million
City Assessor's schedule of values, P10 million
How much is the capital gains tax on the sale?

Less: Cost 3,000,000
Rate 15%
Net Capital Gain
"Net Capital Gains" means the excess of the gains from sales or
exchanges of capital assets over the losses from such sales or
exchanges. [Sec 2(o) of RR 6-2008]
Gains or losses from the sale are determined by deducting the

cost basis for the shares sold or disposed plus expenses of
sale/disposition, if any, from the amount of consideration contracted to
be paid.
Under current rules, the selling price cannot be lower than the fair
market value of the shares sold. Otherwise, the difference may be
subject to tax under certain circumstances.
Fair Market Value of Shares
Revenue Regulation 20-2020
Common shares the book value of common shares on the latest available financial statements duly
certified by an independent Certified Public Accountant prior to the date of sale but not
earlier than the immediately preceding year. Adjusted net asset method is no longer
applicable.
Preferred shares liquidation value, which is equal to the redemption price of the shares as of the balance
sheet date nearest to the transaction date, including any premium and cumulative
preferred dividends in arrears.
In case there are both common and preferred shares, the book value per common share
is computed by deducting the liquidation value of the preferred shares from the total
equity of the corporation.
Sale of Real Property Held as Capital Asset
Mr. Shine sold real property for P9,000,000. The property has a zonal
value of P8,000,000 and an appraised value of P10,000,000. She
purchased the property for P5,000,000 five years ago. How much is the
capital gains tax arising from the sale of real property?
= P10,000,000 x 6%
= P600,000
Presumed Gain
Sale of real properties which are not used in business are subject to
capital gains tax of 6% based on whichever is the higher of
gross selling price or

fair market value
All individuals are subject to capital gains tax on the sale of real
property classified as capital asset.
Fair Market Value
For purposes of computing any internal revenue tax, the value of the
property shall be, whichever is the higher of
The fair market value as determined by the Commissioner

The fair market value as shown in the schedule of values of the
Provincial and City Assessors
Transaction Covered
Sale
Exchange
Other disposition of real property located in the Philippines,
classified as capital assets
Pacto de retro sales and other forms of conditional sales, by
individuals, including estates and trusts
Who bears the burden
Seller. Since it is the seller who generated an income, the seller bears
the burden. But the buyer has the obligation to withhold the capital
gains tax.
Effect of Non-Payment
No registration of any document transferring real property shall be
effected by the Register of Deeds unless the Commissioner of his duly
authorized representative has certified that such transfer has been
reported, and the capital gains tax imposed, if any, has been paid.
Capital Gains Tax Even if Sold at Loss
The capital gains tax imposed on sale of real property is still payable
despite the fact that the property is sold at a loss because the tax is
based on the gross selling price.
Capital Gains Tax Even if Sold at Loss
In 2016, Mr. P purchased lot 1234 situated in Marikina City for
P5,500,000. In 2020, He was able to sell the property for P3,500,000
when the fair market value of the land is P3,000,000. How much
income tax should he pay from this sale transaction?
= P3,500,000 x 6%
= P210,000
Disposition to Government
In case of dispositions of real property made by individuals to
government or any of its political subdivisions or agencies or to
government-owned or controlled corporations, the individual has the
option to be taxed under
Section 24(A), basic income tax

Section 24(D)(1), capital gains tax at 6%
Disposition to Government
In 1990, Mr. Z bought a vacant lot adjoining his residential house. The
cost of the lot was P4 million. In 2020, the value of the lot declined to
P3 million because of casual flooding in the area even during the
summer season. When he discovered that his lot is located near the
fault line, he feared that its value will further decline. Hence, he sold
the lot to the government for P2 million. How much is the lowest
income tax that he could pay within the legal means?
P0
Full Exemption
Sale or disposition of principal residence by natural persons
The proceeds of which is fully utilized in acquiring or constructing a new
principal residence within 18 calendar months from the date of sale or
dispositions
Historical cost or adjusted basis of real property sold or disposed shall be
carried over to the new principal residence built or acquired
The Commissioner shall have been duly notified by the taxpayer within
30 days from the date of sale or disposition through a prescribed return
or his intention to avail of the tax exemption
The said tax exemption can only be availed of once every ten years
Full Exemption
On August 15, 2020, Mr. C sold a 500 sqm. Residential house for P3,000,000. The
house was acquired in 2002 for P2,000,000. On the date of sale, the fair market
value of the house as shown in the real property declaration was P2,500,000 and
the assessed value amounted to P2,200,000. The zonal value was P7,000 per sqm.
If the proceeds were utilized in acquiring a new principal residence, the capital
gains tax is?
P0
Full Exemption
On August 15, 2020, Mr. C sold a 500 sqm. Residential house for P3,000,000. The
house was acquired in 2002 for P2,000,000. On the date of sale, the fair market
value of the house as shown in the real property declaration was P2,500,000 and
the assessed value amounted to P2,200,000. The zonal value was P7,000 per sqm.
How much should be deposited in escrow if the proceeds of the sale shall be
utilized in acquiring a new residence?
P3,500,000 x 6% = P210,000
Partial Exemption
If there is no full utilization of the proceeds of sale or disposition, the
portion of the gain presumed to have been realized from the sale of
disposition shall be subject to capital gains tax.
Unutilized amount GSP or FMV

x = Taxable Portion
Gross Selling Price (whichever is higher)
Partial Exemption
Ms. J sold her principal residence for P5,000,000 when its fair market
value was P6,000,000. The house was purchased five years ago for
P3,000,000. Out of the proceeds of P5,000,000, Janet utilized the
P4,000,000 for the purchase of a new residential house. The capital
gains tax on the sale is
Partial Exemption
Unutilized amount GSP or FMV (whichever
x = Taxable Portion
Gross Selling Price is higher)
P1,000,000
x P6,000,000 = P1,200,000
P5,000,000
Partial Exemption
P1,200,000 x 6% = P72,000
Partial Exemption
OR 1/5 x P6,00,000 x 6% = P72,000

Total Income Tax Due
Total Income Tax
Ms. Y, a resident citizen had the following data for the year. How much
is the total income tax expense
Gross income from business P700,000
Royalty from books 40,000
Gain on direct sale to buyer of shares of stock of a domestic
70,000
corporation held as capital asset
Loss on sale of land in the Philippines held as capital asset on a
selling price of P1,000,000 when the fair market value was 500,000
P1,200,000
Business Expense 300,000
Total Income Tax
Gross income from business P700,000 Basic Income Tax
Royalty from books 40,000 Final Income Tax
70,000 Capital Gains Tax
selling price of P1,000,000 when the fair market value was 500,000 Capital Gains Tax
P1,200,000
Business Expense 300,000 Basic Income Tax
Total Income Tax
Royalty from books 40,000 4,000
70,000
P1,200,000
Final Income Tax 4,000
Total Income Tax
70,000 10,500
selling price of P1,000,000 when the fair market value was 500,000 72,000
P1,200,000
Capital Gains Tax 82,500
Total Income Tax
Gross income from business P700,000 P700,000
70,000
P1,200,000
Business Expense 300,000 (300,000)
Taxable Income P400,000
Income Tax Due 30,000
Total Income Tax
Final Income Tax P4,000
Capital Gains Tax 82,500
Basic Income Tax 30,000
Total Income Tax P116,500
Income Tax Return
Individual Taxpayers
The following are required to file income tax return:
Resident citizen
Non-resident citizen, on income from sources within the Philippines
Resident alien, on income from sources within the Philippines
Non-resident alien engaged in trade or business or in the exercise of
profession in the Philippines, on income from sources within the
Philippines
Income Tax Return
An income tax return means a statement of income tax of a taxpayer
showing the nature and amounts of his income less the allowed
deductions for the taxable year. It is an under oath declaration of the
taxpayer reflecting his true and correct tax liability.
Tax return refers to a formal report prepared by the taxpayer or his

agent in a prescribed form showing an enumeration of taxable amounts
and description of taxable transactions, allowable deductions, amount
of tax and tax payable to the government.
Income Tax Return
Annual Income Tax Return For Individuals Earning Purely Compensation Income
BIR Form No. 1700
(Including Non-Business/Non-Profession Related Income)
Annual Income Tax Return For Individuals (including MIXED Income Earner), Estates
BIR Form No. 1701
and Trusts
Annual Income Tax Return for Individuals Earning Income PURELY from
BIR Form No. 1701A Business/Profession (Those under the graduated income tax rates with OSD as mode of
deduction OR those who opted to avail of the 8% flat income tax rate)
BIR Form No. 1701Q Quarterly Income Tax Return for Individuals, Estates and Trusts
BIR Form No. 1706 Capital Gains Tax Return for Onerous Transfer of Real Property Classified as Capital
Asset (both Taxable and Exempt)
Capital Gains Tax Return for Onerous Transfer of Shares of Stocks Not Traded Through
BIR Form No. 1707
the Local Stock Exchange
BIR Form No. 1707-A Annual Capital Gains Tax Return for Onerous Transfer of Shares of Stock Not Traded
Through the Local Stock Exchange
BIR Form No. 1700
BIR Form No. 1700
Description
This return shall be filed by every resident citizen deriving

compensation income from all sources, or resident alien and non-
resident citizen with respect to compensation income from within the
Philippines.
BIR Form No. 1700
Exception
The following shall not use this form:
1. An individual whose taxable income does not exceed P 250,000.00;

2. An individual with respect to pure compensation income, as defined in Section 32(A)(1)
derived from sources within the Philippines, the income tax on which has been correctly
withheld (tax due equals tax withheld) under the provisions of Section 79 of the Code:
Provided, that an individual deriving compensation concurrently from two or more
employers at any time during the taxable year shall file an income tax return;
3. An individual whose sole income has been subjected to final withholding tax pursuant to
Section 57(A) of the Tax Code; and
4. A minimum wage earner as defined in Section 22(HH) of the Tax Code or an individual who is
exempt from income tax pursuant to the provisions of the Tax Code and other laws, general or
special.
Substituted Filing
SECTION. 51-A. Substituted Filing of Income Tax Returns by Employees
Receiving Purely Compensation Income. Individual taxpayers receiving
purely compensation income, regardless of amount, from only one
employer in the Philippines for the calendar year, the income tax of
which has been withheld correctly by the said employer (tax due equals
tax withheld) shall not be required to file an annual income tax return.
The certificate of withholding filed by the respective employers, duly
stamped by the BIR, shall be tantamount to the substituted
filing of income tax returns by said employees.
Substituted Filing
SECTION. 51-A. Substituted Filing of Income Tax Returns by Employees
Receiving Purely Compensation Income. Individual taxpayers receiving
purely compensation income, regardless of amount, from only one
employer in the Philippines for the calendar year, the income tax of
which has been withheld correctly by the said employer (tax due equals
tax withheld) shall not be required to file an annual income tax
return. The certificate of withholding filed by the respective employers,
duly stamped by the BIR, shall be tantamount to the
substituted filing of income tax returns by said employees.
Substituted Filing
Applicable to individual taxpayers:
receiving purely compensation income, regardless of amount

from only one employer in the Philippines for the calendar year, and
the income tax of which has been withheld correctly by the employer.
The certificate of withholding (BIR Form No. 2316) filed by their respective
employers, duly stamped by the BIR, shall be tantamount to the
substituted filing of income tax returns by the employee.
BIR Form No. 1700
Filing Date
This return is filed on or before April 15 of each year covering income

for the preceding taxable year.
BIR Form No. 1701
BIR Form No. 1701
Description
BIR Form No. 1701 shall be filed by individuals who are engaged in
trade/business or the practice of profession including those with mixed
income (i.e., those engaged in the trade/business or profession who
are also earning compensation income) in accordance with Sec. 51 of
the Code, as amended. The annual income tax return summarizes all
the transactions covering the calendar year of the taxpayer.
BIR Form No. 1701
Persons Required to File
This return shall be filed by the following individuals regardless of amount of gross
income:
1. A resident citizen engaged in trade, business, or practice of profession within

and without the Philippines.
2. A resident alien, non-resident citizen or non-resident alien individual engaged
in trade, business or practice of profession within the Philippines.
3. A trustee of a trust, guardian of a minor, executor/administrator of an estate,
or any person acting in any fiduciary capacity for any person, where such trust,
estate, minor, or person is engaged in trade or business.
4. An individual engaged in trade or business or in the exercise of their profession
and receiving compensation income as well.
BIR Form No. 1701
Filing Date

BIR Form No. 1701A
BIR Form No. 1701A
The return shall be filed by individuals earning income PURELY from

trade/business or from the practice of profession, to wit:
1. A resident citizen (within and without the Philippines);

2. A resident alien, non-resident citizen or non-resident alien (within
the Philippines).
BIR Form No. 1701A
The return shall only be used by said individuals as follows:
A. Those subject to graduated income tax rates and availed of the

optional standard deduction as method of deduction, regardless of
the amount of sales/receipts and other non-operating income; OR
B. Those who availed of the 8% flat income tax rate whose
sales/receipts and other non-operating income do not exceed P3M
BIR Form No. 1701A
Filing Date

BIR Form No. 1701Q
BIR Form No. 1701Q
This return shall be filed in triplicate by the following individuals regardless of

amount of gross income:
1. A resident citizen engaged in trade, business, or practice of profession within

and without the Philippines.
2. A resident alien, non-resident citizen or non-resident alien individual engaged
in trade, business or practice of profession within the Philippines.
3. A trustee of a trust, guardian of a minor, executor/administrator of an estate,
or any person acting in any fiduciary capacity for any person, where such trust,
estate, minor, or person is engaged in trade or business.
BIR Form No. 1701Q
Filing Date
1st quarter On or before May 15 of the current taxable year
2nd quarter On or before August 15 of the current taxable year
3rd quarter On or before November 15 of the current taxable yea

Period to File Income Tax Returns
Engaged in Trade of Business Not Engaged in Trade of Business
A citizen of the Philippines and any alien individual engaged in Income tax return of an individual who is not
business or practice of profession within the Philippine shall on a substituted basis shall be filed on or
file an income tax return, regardless of the amount of gross before April 15 of each year covering income
income. of the preceding taxable year. [Sec. 51 (C)(1),
NIRC]
Return Due Date for Filing Return
Q1 Return May 15 of the same year
Q2 Return August 15 of the same year
Q3 Return November 15 of the same year
Annual Return April 15 of the following year
BIR Form No. 1706
BIR Form No. 1706
This return is filed by all persons (natural or juridical) whether resident or non-resident, including
Estates and Trusts, who sells, exchanges, or disposes of a real property located in the Philippines
classified as capital asset as defined under Sec. 39 (A)(1) of RA 8424 for the purpose of securing a
Tax Clearance Certificate to effect transfer of ownership (title) of the property from the seller to the
buyer.
However, filing of the return is no longer required when the real property transaction involves the
following:
- it is not classified as a capital asset

- not located in the Philippines
- disposition is gratuitous
- disposition is pursuant to the Comprehensive Agrarian Reform
To be filed with the RDO having jurisdiction over the place where the property being transferred is
located.
BIR Form No. 1706
Filing Date
Filed within thirty (30) days following each sale, exchange or disposition of real property
In case of installment sale, the return shall be filed within thirty (30) days following the receipt of
the 1st downpayment and within thirty (30) days following each subsequent installment
payment
One return is filed for every transfer document regardless of the number of each property sold,
exchanged or disposed of.
BIR Form No. 1707
BIR Form No. 1707
Description
This return is filed by a natural or juridical person, resident or non-

resident, who is not exempt under existing laws for the sale, barter,
exchange or other onerous disposition intended to transfer ownership
of shares of stocks in domestic corporation classified as capital assets,
not traded through the local stock exchange.
BIR Form No. 1707
Filing Date
Filed within thirty (30) days after each cash sale, barter, exchange or
other disposition of shares of stock not traded through the local
stock exchange.
In case of installment sale, the return shall be filed within thirty (30)
days following the receipt of the first down payment and within (30)
days following each subsequent installment payment.
BIR Form No. 1707-A
BIR Form No. 1707-A
Description
This return is filed by every natural or juridical person, resident or non-

resident, who is not exempt under existing laws for sale, barter,
exchange or other disposition of shares of stock in a domestic
corporation, classified as capital assets, not traded through the local
stock exchange.
BIR Form No. 1707-A
Filing Date
For individual taxpayers, this final consolidated return is filed on or

before April 15 of each year covering all stock transactions of the
preceding taxable year.
For corporate taxpayers, this form is filed on or before the fifteenth

(15th) day of the fourth (4th) month following the close of the
taxable year covering all transactions of the preceding taxable year.
Amended Income Tax Returns
The individual income tax return maybe amended on any day within 3
years from its filing or from the last day prescribed by law for filing,
provided that no notice of assessment or tax audit has been actually
served to the taxpayer in the meantime.
Information Return
Any individual not required to file an income tax return may
nevertheless be required to file an information return pursuant to rules
and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
Who are required to submit Information Return
Withholding Every withholding agent required to deduct and withhold taxes under Section 57
Agent shall submit to the Commissioner an annual information return containing the list
of payees and income payments, amount of taxes withheld from each payee and
such other pertinent information as may be required by the Commissioner. [Sec.
58(C), NIRC]
Employer Every employer required to deduct and withhold the taxes in respect of the wages
of his employees shall, on or before January thirty-first (31st) of the succeeding
year, submit to the Commissioner an annual information return containing a list of
employees, the total amount of compensation income of each employee, the total
amount of taxes withheld therefrom during the year, accompanied by copies of the
statement referred to in the preceding paragraph, and such other information as
may be deemed necessary. [Sec. 83(B), NIRC]
Annual Information Return
Self-Assessment System
As mandated by law, an income taxpayer is required to file his / her ITR,
computing such declarable gross income with claimable allowed
deductions by himself /herself or with the assistance of accountant
based on their knowledge / interpretation of income tax laws.
Husband and Wife
Married individuals, whether citizens, resident or nonresident aliens,
who do not derive income purely from compensation, shall file a return
for the taxable year to include the income of both spouses, but where
it is impracticable for the spouses to file one return, each spouse may
file a separate return of income but the returns so filed shall be
consolidated by the Bureau for purposes of verification for the taxable
year.
Income of Unmarried Minor
Income of unmarried minors derived from property received from a
living parent shall be included in the return of the parent, except
When tax has been paid on such property

When the transfer of such property is exempt from tax.
Persons With Disability
Who will prepare the tax return Who is responsible for the return
If the taxpayer is unable to make his own return, The principal and his representative or guardian
the return may be made by his duly authorized assumes the responsibility of making the return
agent or representative or by he guardian or and incurring penalties provided for erroneous,
other person charged with he care of his person false, or fraudulent returns.
or property.
Signature Presumed Correct
The fact that an individual's name is signed to a filed return shall be
prima facie evidence for all purposes that the return was actually
signed by him.
Penalties for Non-Filing of Returns
Surcharge, penalty imposed in addition to the tax required to be
paid at 25% [Sec. 248(A)(1), NIRC] or 50% [Sec. 248(B), NIRC] of the
amount due
12% Deficiency and/or 12% Delinquency Interest
Failure to file information returns: P1,000 for each failure upon
notice and demand by the CIR unless due to reasonable cause not
willful neglect provided the aggregate amount for all such failures
during the calendar year shall not exceed P25,000. [Sec. 250, NIRC]
Compromise Penalty
Time of Payment of the Income Tax
The total amount of tax imposed by this Title (Tax on Income) shall be
paid by the person subject thereto at the time the return is filed.
Pay as you file.

Modes of Payments to AAB
Over the counter cash Refers to payment of tax liabilities to authorized agent bank in the
payment currencies that the legal tender in the Philippines.
Bank debit system Refers to the system whereby a taxpayer, through a bank debit
memo/advice, authorizes withdrawal from his/its existing bank accounts
for payment of tax liabilities
Checks Refers to a bill of exchange or Order Instrument drawn on a bank payable

on demand

Individual Income Tax

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Individual Income Taxation

Section 24, NIRC A B C/D

Taxpayer/Tax base Basic (Regular, Ordinary,

RC, NRC, RA, NRETB

15% on capital gain on the sale of

NIT OGIT FIT CGT Within Without

Non-resident alien engaged in trade

Non-resident alien not engaged in

Graduated Income Tax Rates

Range of Taxable Income Tax Due = a + (b x c)

Derived from sources within

This is also subject to withholding of final tax [Section 57 (A)].

Compensation income earner

Non-Resident Alien not engaged in trade or business 25% Gross Income

Minimum Wage Earners -

Aliens employed by POGO (R.A. 11590) 25% Gross Income

P0. Compensation Income of P250,000 and below is tax exempt.

Computation Tax Due

Computation Tax Due

Computation Tax Due

Computation Tax Due

Computation Tax Due

P0. A non-resident citizen/OCW is not taxable on income earned

Ms. Z is a Malaysian. He went to the Philippines as a manager of a BPO

Mr. F, a nonresident alien was seconded to HHH Inc., a domestic

Compute his taxable income and income tax liability.

Mr. C is exempt since he is considered a minimum income earner.

Compute his taxable income and income tax liability.

Overtime pay, P150,000

All concerned employees of the regional or area headquarters and

Compensation Income P5,000,000

Computation Tax Due

20 - 35% Taxable Income

(Resident Citizen, Non-Resident Citizen, Resident Gross Sales/Receipts and

Non-Resident Alien not engaged in trade or

Professional income Fees by a profession

Business income Any income derived from doing business

Gains derived from dealings in Ordinary gains

earned abroad by a resident citizen or

Rent Income from leasing real/personal property

earned abroad by a resident citizen or

Liquidating dividends in excess of invested capital

Annuities Periodic instalment payments of income

Prizes 10,000 and below

Pensions Payment for past employment services rendered

Partner's distributive share from

Gross receipts, P2,900,000

Operating expenses - (1,500,000)

Income Tax Due at 20 - 35% P105,000

Income Tax Due at 8% (2,200,000 250,000) x 8% P156,000

Graduated income tax rates

Required to file quarterly and annual income tax returns without

Income Tax Due

Such election shall be irrevocable, and no amendment of option shall

1st Quarterly Income Tax Return.

He is also subject to applicable business tax, if any.

Mr. J signified his intention to be taxed at 8% income tax rate on gross

Total Sales P6,500,000

The gross receipts exceeds the VAT threshold of P3,000,000.

Taxpayer shall be allowed an income tax credit of quarterly