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Module 2 Concept of Income

The document outlines the concept of income and its exclusions from gross income as per Section 32 of the NIRC, including life insurance proceeds, gifts, and compensation for injuries. It details the sources of income taxable within the Philippines and the classification of income taxpayers, including domestic and foreign corporations as well as residents and non-residents. Additionally, it defines the residency status of citizens and aliens for tax purposes.

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17 views7 pages

Module 2 Concept of Income

The document outlines the concept of income and its exclusions from gross income as per Section 32 of the NIRC, including life insurance proceeds, gifts, and compensation for injuries. It details the sources of income taxable within the Philippines and the classification of income taxpayers, including domestic and foreign corporations as well as residents and non-residents. Additionally, it defines the residency status of citizens and aliens for tax purposes.

Uploaded by

Djohn Definitely
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CONCEPT OF INCOME

INCREASE IN NET WORTH = INCOME

Exclusions from Gross Income. (SECTION 32 of NIRC)


The following items shall not be included in gross income and shall be exempt from Income taxation

Proceeds of life insurance policies Return of Capital, Life is not measurable in money

Return of Insurance Premium Return of Capital, Excess is Income

Gifts, Bequests, and Devises. Taxable with Transfer tax, exempt from Income tax

Compensation for Injuries or Sickness. Return of Capital, Health is not meaasurable in money

SSS/GSIS benefits received Return of Capital, Health is not meaasurable in money


SECTION 32 of NIRC
(A) General Definition. - Except when otherwise provided in this Title,
gross income means all income derived from whatever source,
including (but not limited to) the following items:
Compensation
(1) Compensation for services to employer
Income
(2) Gross income derived from the conduct of trade or business or the
exercise of a profession;
Business Income
(11) Partner's distributive share from the net income of the general
professional partnership.
(5) Rents;
(4) Interests;
(6) Royalties;
(7) Dividends;
Passive Income
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(3) Gains derived from dealings in property (capital assets) Capital Gains
SOURCES OF INCOME*Section 42,
NIRC
Income earned within the Philippines:
Salaries from employment in the Philippines
Sale of Real Property. - gains, profits and income from the sale of real property located in the Philippines;
Sale of Personal Property. - gains; profits and income from the sale of personal property sold in the Philippines
Rent on property located in the Philippines

Interests. - Interests derived from sources within the Philippines, and interests on bonds, notes or other
interest bearing obligation of residents, corporate or otherwise;

Dividends. - The amount received as dividends:


(a) from a domestic corporation; and
(b) from a foreign corporation, 50% or more of its business done in the Philippines, earned
w/i = amount proportionate to business done in the Philippines
PHILIPPINE INCOME TAX, SITUS OF TAXATION

INCOME EARNER INCOME EARNED


W/I W/O
Taxable Taxable
Domestic corporation

Foreign corp. Yes No Taxable Exempt

Taxable Taxable
Resident Citizen Yes Yes

Alien Yes No Taxable Exempt

Non-Resident Yes No Taxable Exempt


INCOME TAXPAYERS

CORPORATION

Domestic Corporations , Corporations that are created or organized in the Philippines under Philippine laws
Taxable with Philippine Income Tax on its income from all sources, within and outside the Phil.
 Returnable and Taxable Income returnable in Quaterly ITR 1702Q, and annual ITR 1702
 Income collected with Final Taxes quarterly reported by withholding agent in 1601FQ

Foreign Corporations , created or organized in the foreing country under foreign country’s laws

Resident foreign corporation, a foreign corporation engaged in trade or business within the Philippines.
 Taxable Income within the Philippines returnable in Quaterly ITR 1702Q, and annual ITR 1702
 Income within the Philippines collected with Final Taxes quarterly reported by withholding agent in 1601FQ
Non Resident Foreign Corporation, foreign corporation not engaged in trade or business within the Philippines.
Income collected with Final Tax @ source and remitted by payor/Resident of the Philippines
CITIZEN of the Philippines ( Taxable for income earned in the Philippines and earned outside the Philippines)

(1) Resident citizen - is a citizen of the Philippines who has a permanent home or place of abode in the
Philippines to which he/she intends to return whenever he/she is absent for business or pleasure.
Stays in the Philippines for 183 days or more.

(2) Nonresident citizen - is a citizen of the Philippines who is:


(a) Resident of foreign country - establishes the fact of his/her physical presence abroad with the
definite intention to reside therein;

(b) Immigrant - leaves the country to reside abroad, either as an immigrant or for employment on a
permanent basis;

(c) Overseas Worker, works and derives income from abroad and whose employment thereat

requires him to be physically present abroad most of the time during the taxable year;

(d) Balikbayan - who has been considered nonresident citizen previously and who arrives in the
Philippines at anytime during the taxable year to reside permanently in the
Philippines shall be
treated as nonresident citizen for the taxable year in which he arrives in the Philippines with
respect to his income abroad until the date of his arrival in the Philippines
ALIEN

(1) Resident alien - is an individual who is not a citizen of the Philippines but whose residence is
within the Philippines.

(2) Nonresident alien - is an individual who is not a citizen of the Philippines and whose residence is
not within
the Philippines.

(3) A nonresident alien is deemed engaged in trade or business in the Philippines if he/she has
stayed in the
Philippines for an aggregate period of more than 180 days during any calendar year.

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