CONCEPT OF INCOME

Income the amount of wealth accumulated plus

savings and the value of the personal
consumption
Increase in Net worth the rule of thumb test to
determine income
Basic formula:
Net worth, ending
Less: Net worth, beginning
Increase (Decrease) in net worth
XXX
Add: Nondeductible items
XXX
Total
Less: Nontaxable items
Personal exemptions
XXX
Net Taxable Income

XXX
XXX

XXX
XXX

donation, grants, and any other source, while

income refers to the earnings of individual
persons, partnership, corporation or estate and
trust whether or not subject to tax.
Receipts vs. Income
Receipts are considered cash collected over a
business period. Receipts may include capital as
well as its earnings, while income refers to the
amount after excluding capital invested, cost of
goods sold and other deductions allowed by law.

Non-taxable and Taxable Income

Income could be tax-exempt or taxable. Taxable
income could either be reportable in the annual
tax return or could be collected with final tax,
whichever is applicable. Once the taxable income
is collected with final tax, it is no longer required
to be reported in the annual tax return.

XXX

The networth is equal to total assets minus total

liabilities
Return on Capital
Since income is commonly defined as all wealth
which flows into a taxpayers hand rather than a
mere return of capital (investment), it is,
therefore, a return on capital (return on
investment)
A sale does not necessarily mean income. To be
considered income, the sale must exceed its
related costs. Thus, an income cannot be
determined by just receiving cash as a result of
sales or collection of receivable. It is not merely a
growth or increment of value in an investment,
but a gain, a profit in excess of capital as a result
of exchange transactions.

Non-taxable Income it should be excluded by

law or treaty from taxation. Whenever this kind of
income is received, it is not required to be
included in the determination of taxable income;
neither shall it be included as part of the gross
income.
e.g.
winnings from sweepstakes or lotto
thirteenth month pay not exceeding
P30,000
Taxable Income means the pertinent items of
gross income specified in the Tax Code less the
deductions, if any, and/or personal and additional
exemptions authorized by such types of income
by the Tax Code or other special laws.

Characteristics of Taxable Income

There must be gain or profit

Distinctions between Income and other

terms
Capital vs. Income
Capital denotes the original investment or fund
used in order to generate earnings which is called
income. Capital is a wealth while income is the
service of wealth.
Revenue vs. Income
Revenue pertains to all funds accruing to the
treasury of the government derived from tax,

A value is received in the form of cash or its

equivalent as a result of rendition of service or
earnings in excess of capital invested. Thus,
cancellation of a taxpayers indebtedness as
remuneration for service rendered is an income.
The recovery of amount invested is not an
income, but the excess over the amount invested
is an income. Mere expectation for profit is not
income and therefore, not taxable.

The gain must be realized or received

The realization of gain may take the form of
actual receipt of cash or may occur as a
constructive receipt of income. A mere increase
in the value of property is not income but merely
an unrealized increase in invested capital.

Income Constructively Received

An income is considered constructively received
when it is credited to the account of, or
segregated in favour of a person. The person
may withdraw the said account credited in his
favour anytime without any substantial
limitations or conditions upon which payment or
enjoyment is to be made or exercised. The
following are the examples:
a. Interest credited on savings bank deposit
b. Matured interest coupons not yet collected
by the taxpayer
c. Dividends applied by the corporation
against the indebtedness of a stockholder
d. Share in the profit of a partner in a general
professional partnership, although not yet
distributed, is regarded as constructively
received
e. Intended payment deposited in court
(consignation)
AS IF Theory of Constructive Income is
designed to prevent a cash basis taxpayer to
delay reporting of income. It also presumes the
existence of income on transactions supposedly
not subject to tax.
3. The Law or Treaty does not exclude the gain
from taxation
In general, all items of income, from whatever
sources, are taxable unless a law or treaty
exempts them from taxation. Accordingly, income
derived from illegal activities is taxable, if
uncovered by the BIR.
SOURCE OF INCOME
Source is ascribed to the place wherein the
income is earned. It is governed by the situs of

taxation. This classification of income is

necessary to determine whether such income is
subject to tax or not.
1. Income from Sources Within the
Philippines
Income within comprises earnings from within
the Philippine territory
a. Compensation for labor or service derived
from Philippine sources
b. Interest on bonds, notes, deposits and the
like earned in the Philippines
c. Dividends declared received from
domestic corporations
d. Rentals and royalties from property
located within the Philippines
e. Gains, profits and income from sale of
property as well as from personal property
in the Philippines
2. Income from Sources OUTSIDE the
Philippines
Income without refers to earnings coming
from outside the Philippines or income derived
from foreign countries
a. Compensation for labor or service
rendered by overseas contract workers
b. Interest on bonds, notes, deposits and the
like earned abroad
c. Dividends received from non-resident
foreign corporation
d. Rentals and royalties from property
located outside the Philippines
e. Gains, profits and income from sale of
property as well as from personal property
located outside the Philippines
In general, income earned outside the Philippines
is taxable only when the taxpayer is a
resident FILIPINO CITIZEN or a DOMESTIC
CORPORATION.
Earnings derives outside the Philippines by nonresident Filipino Citizen and foreign
corporations are not subject to tax in the
Philippines
3. Income Partly Within and Partly
Outside the Philippines
Income Partly Within and Partly Without are
earning from sources partly within and partly
without the Philippines includes gains, profits and
income derived from:

a. Transportation or other services rendered

partly within and partly outside
b. Dividend received by a resident citizen
from resident foreign corporation
In general, when an income is earned partly from
within and without, only income within is taxable
in the Philippines, except if the taxpayer is a
resident citizen or a domestic corporation. A
Filipino citizen or a domestic corporation whose
income is derived within and without is generally
subject to tax.
Classification of Income
1. Compensation Income the gain derived
from labor, especially, employment
(earned from employer-employee
relationship) such as salaries and
commissions
2. Profession or Business Income the value
derived from an exercise of profession,
business or utilization of capital including
profit or gain derived from sale or
conversion of assets. Example are net
income from business and gain from the
sale of assists used in trade or business .
In case of revenue arising from sales,
business income (gross profit) is equal to
sales reduced by sales returns, sales
allowances, sales discounts and cost of
sales.
In the case of revenue arising from
practice of profession or receipts from rent
and services, business income equal to
gross receipts less returns, allowances and
discount.
3. Passive Income an income in which the
taxpayer merely waits for the amount to
come in. Examples are royalty, interest,
prizes, and winnings. Generally, passive
income is subject to final tax.
4. Capital gain an income derived from sale
of assets not used in trade or business.
Examples are safe of family home and
other capital assets.
Capital gains and passive income are
generally subjected to capital gains tax
and passive income tax respectively,
which are final taxes and they are no
longer required to be reported in the
Annual Income Tax Return
An Income Tax Return (ITR) is a formal
statement of the taxpayers taxable income and

deductions, reported in the BIR prescribed form,

to be filed and paid quarterly.
For the final quarter, the Annual Income Tax
Return is prepared. All tax exempt income and
other items of income subject to final tax shall
not form part of the gross income to be reported
in the income tax return.
Forms and Valuation of Income
a. Cash income pertains to money or
money substitutes received as
compensation or earnings derived from
labor, practice of profession and conduct
of business. Examples of cash are bills and
coins which are in circulation and legal
tender, bank drafts, money orders and
treasury warrants.
b. Property as income denotes the right of
ownership over a tangible or intangible
thing earned as a result of labor, business
or practice of profession. Examples of
property are real estate, stocks, bonds,
etc.
c. Service a form of income based on
performance received in payment for the
work previously rendered by one person to
another.

In general, taxable income is valued as follows:

1. Cash received for income earned
2. Fair value of property received as payment
for income earned
3. Fair value (at the date the income was
earned) of the share of stocks received as
payment of income earned
4. Fair value of the service received (in the
absence of any stipulated price) as
payment of income earned
5. Fair value of the promissory notes
received as payment of income:
a. Face value of the note, if interest
bearing
b. Discounted value of the note, if
noninterest bearing
Tax accounting periods
1. Calendar Period covers a period from
January 1 to December 31 of the taxable
year

2. Fiscal Period covers a period of 12

months which ends on the last day of any
calendar month other than December 31
3. Short Period income for a period of
less than 12 months is required to be
reported when the taxpayer dies or when
the taxpayer is under jeopardy
assessment
4. Variable Period a taxpayer is required
to file and pay tax within a period that
varies depending on the nature of
income earned. This period may be
monthly, quarterly, semi-annually or at
specific time per sale or exchange
transaction. In other words, variable
period covers taxes paid on per
transaction basis.
Methods of Reporting Income and Expenses
a. Cash method generally reports income
upon cash collection and reports expenses
upon payment. If earned from rendering of
services, income is to be reported in the
year of collection whether earned and/or
unearned
b. Accrual method generally reports
income when earned and reports expense
when incurred. If earned from sale of
goods, income is to be reported in the
year of sale, irrespective of collection.
Special Methods
1. Instalment - when collections extends
over relatively long periods of time and
there is a strong possibility that full
collection will not be made. As customers
make instalment payments, the seller
recognizes the gross profit on sale in
proportion to the cash collection
Reportable income derived on instalment
sale is the proportion of instalment
collection actually received during the
year in relation to the gross profit and
contract price.

Selling Price is the amount realized on sale

Cash received
xx
Fair Market value of the property received
xx
Instalment obligations of the buyer
xx

Mortgage assumed by the buyer

xx
Selling price

xx

Contract Price is the amount which the buyer

agreed to pay the seller
Selling price
Add: Excess of mortgage over cost
xx
Total
Less: Mortgage assumed by the buyer
xx
Contract price

xx

xx

xx

Initial payments are payments received in

cash or property (other than evidence of
indebtedness of the buyer) during the taxable
year in which the sale is made
Down payment
xx
Instalment received in the year of sale
xx
Total
Add: Excess of mortgage over cost
xx
Initial Payments
xx

xx

Commissions and other selling expenses paid or

incurred by the seller are not to be deducted or
taken into account in determining the amount of
initial payments, the total contract price or the
selling price
Annual (Equal) Installment Payments after
the year of sale are the remaining balance
collectible on a yearly basis from the buyer
Selling price
xx
Less: Initial Payments
xx
Mortgage assumed by the buyer
xx
xx
Balance
xx
Divided by remaining years of payment
xx
Annual instalment payment after year of sale
xx

When to use Instalment Method

1. Instalment Sale of Personal Property

a. Personal property is regularly sold on
an instalment basis by a dealer
b. Casual sale of personal property on
instalment basis to the following
conditions
The selling price exceeds 1000
The initial payments do not
exceed 25% of the selling price
The property sold is not an
inventory
As a rule in casual sale of personal property, if
the initial payment exceeds 25% of selling
price, the transaction is considered cash sales
In the sale of personal property classified as
capital asset by a taxpayer other than a
corporation, the reportable income or loss is
100% if the holding period is within one year if
the holding period is more than one year, the
reportable income or loss is only 50%.

2. Instalment Sale of Real Property

a. Sale of realty (inventory) where the
initial payments do not exceed 25% of
the selling price.
sale is subject to normal tax of
30% for corporate taxpayer or
5%to 32% for individual taxpayer
b. Sale by individuals of real property
considered as capital asset, if initial
payments do not exceed 25% of the
selling price
- This sale is subject to a capital
gains tax of 6% based on the
selling price or zonal value
whichever is higher

2. Deferred Payment
Where the initial payments on instalment sale
exceed 25% of the selling price but they may only
be realized in the subsequent year, the taxpayer
is allowed to defer reporting income
The following rules must be observed:
1. The note evidencing the buyers obligation
shall be converted to its cash equivalent
(discounted value)
2. Income shall be reported over the years of
collections

3. Previously reported income for current

year collections should reduce the current
years reportable income

3. Income from Long-term Construction

Contracts
It refers to the earnings derived from construction
of building, bridges, installation and other
construction usually covering a period of more
than one year
When income is derived from long-term
construction contracts, it is generally reported on
the basis of percentage of completion made
every year that will be evidenced by the
certificates of engineers or architects
The reportable income is calculated by deducting
from the contract price the actual cost of
construction
a. Completed Contract Method requires
recognition of revenue only when the
contract is finally completed
b. Percentage of Completion Method requires recognition of income based on
the progress of work

4. Gross Income from Farming

Farming business embraces farm in the ordinary
accepted sense, and includes stock, dairy,
poultry, fruit and truck farms, also plantations,
ranches and all land used for farming operations
All individuals, partnerships, or corporations that
cultivate operate or manage farms for gain or
profit either as owners or tenants are designated
farmers. A person cultivating or operating farm
for recreation or pleasure the result of which is a
continual loss from year to year is not regarded
as a farmer
Business engaged in farming could derive income
from the following sources:
1. Income from Products Raised
It refers to the income derived by the
farmer from products harvested or raised.
These products are generally valued at
their selling price. The gross income from
products raised is computed as follows:

Harvest or product raised at selling price

xx
Less: Unsold at end of the year(@ selling price)
xx
Gross income from prod. Raised(harvested &
sold) xx
2. Income from trading of farm products
purchased
This income is derived from the sale of
livestock and products purchased from other
farmers
Products sold
Less: Cost of sale
Gain from sale

The profits from the sale of livestock or other items

that were purchased are to be ascertained by
deducting the cost from the sales price in the year in
which the sale occurs
In the case of the sale of animal purchased as work
animals or solely for breeding or dairy purposes and
not for resale, the profit shall be the amount of any
excess of the sales price over the amount representing
the difference between the cost and the depreciation
sustained

xx
xx
xx

3. Other farm income

These may derive from sale of ordinary farm
assets and farm miscellaneous income,
including capital assets
Ordinary farm assets may comprise of assets
used in the farm such as equipment,
implements and work animals
Capital assets comprise of assets comprise of
assets not used in the farm.
Miscellaneous income may consist of rent
received from crop shares, proceeds of
insurance on growing crops
Methods of Computing Gross Income
derived from Farming
1. Cash Basis the computation of gross
income for this method disregards the
presence of inventory (inventory is not yet
an income)
A farmer reporting on the basis of receipts
and disbursements (in which no inventory to
determine profits is used) shall include in his
gross income for the taxable year the
following:
a. The amount of cash or the value of
merchandise or other property received
from the sale of livestock and products
which were raised during the taxable year
or prior year
b. The profits from the sale of any livestock
or other items which were purchased
c. Gross income from all other sources

2. Accrual Basis the computation of gross

income for this method considers the
presence of inventory (meaning, inventory
is part of income for the year). The ending
inventory is added as part of gross income
while the beginning inventory is added as
part of gross income the beginning
inventory is deducted to compute the
gross income
3. Crop Basis this method is employed by
farmers whose crops shall be harvested
for more than a year from the time of
planting

Exclusion from Gross Income

Exclusion refers to items or receipts not
included in the determination of the taxable
income because the law or treaty provides that
they are exempt from income tax.
The law specially excludes certain items from
gross income. Items excluded from gross income
are generally non-taxable. They are not
included in the income tax return unless
information regarding them is specifically called
for.
Nontaxable Compensation Income
- are compensation in nature but which the
law specifically excludes as part of the
gross income for taxation purposes.
1. Compensation income including holiday
pay, overtime pay, night shift differential
pay and hazard pay earned by minimum
wage earner who has no other reportable
income
2. Compensation income and/or business
income earned outside the Philippines by
a Filipino overseas contract worker, nonresident Filipino Citizen , resident alien and
foreign corporation
3. 13th month pay, bonuses and other
benefits not exceeding P30,000 per year
(other benefits include excess amount of
the prescribed ceiling of de minimis
benefits
4. De minimis benefits within the prescribed
ceiling
5. Compensation received under employers
convenience benefit
6. Proceeds of life insurance policies paid to
the heirs upon the death of the insured
7. Amounts received through accident or
health insurance, or under the Workmens
compensation act, as compensation for

personal injuries or sickness, plus the

amounts of any damages received,
whether by suit or agreement, or account
of such injuries or sickness
8. Retirement benefits under RA 7641 and
those received by officials and employees
of private firms, whether individual or
corporate, in accordance with a
reasonable private plan maintained by the
employer. The following conditions must
be met:
a. The retiring official or employee has
been in the service of the same
employer for at least 20 years
b. He/she is not less than 50 years of age
at the time of retirement
c. He/she has not availed of similar
benefits in the past
The law does not require that the employees
service should be uninterrupted within 10 years
9. Any amount received by an official or
employee or by his heirs from the
employer as a consequence of separation
of such official or employee from the
service of the employer because of death,
sickness, or other physical disability or for
any cause beyond the control of the said
official or employee
10.Social security benefits, retirement
gratuities, pensions and other similar
benefits received by resident or nonresident citizens of the Philippines or
aliens who came to reside permanently in
the Philippines, from foreign government
agencies and other institutions, private or
public
11.Benefits received from or enjoyed under
the Social Security System including
maternity benefits as stipulated in RA
8282
12.Benefits received from the GSIS, including
the retirement gratuity received by
government officials and employees
13.GSIS, SSS, Medicare (Phil-health) and Pagibig contributions and union dues of
individuals
14.Salaries and stipends in dollars received
by non-Filipino citizens serving as staff of
the International Rice Research Institute
and the Ford Foundation
15.Tax exemption of allowances paid to
military personnel

16.Casual employment like house helper/

maid, not connected in the conduct of
business of employer

NON-TAXABLE OTHER RECEIPTS

1. The amount received by the insured as a
return of the premiums paid by him under
life insurance, endowment or annuity
contract either during the term or at the
maturity of the term mentioned in the
contract or upon the surrender of the
contract
2. The value of property by gift, bequest,
devise or descent: provided, however that
the income from such property, as well as
gift, bequest or descent of income from
any property, in case of transfers of
divided interest shall be included in the
gross income
3. Income of any kind to the extent required
by any treaty obligation binding upon the
Government of the Philippines
4. Payments of benefits due to any person
residing in the Philippines under laws of
the United States administered by the
United States Veterans Administration
(USVA)
5. Income derived from investments in the
Philippines in loans, stocks, bonds, or
other domestic securities, or from interest
on deposits in banks in the Philippines:
a. Foreign governments
b. Financing institutions, owned,
controlled or enjoying refinancing from
foreign governments
c. International or regional financial
institutions established by foreign
governments
6. Income derived from any public utility or
from the exercise of any essential
governmental function accruing to the
Government of the Philippines or to any
political subdivision
7. Prizes and awards made primarily in
recognition of religious, charitable,
scientific, educational, artistic, literary, or
civic achievement but only if the recipient
was
a. Selected without any action on his part
to enter the contest of proceeding
b. Not required to render substantial
future services as a condition to
receive such prize or award

8. Prizes and awards granted to athletes in

local and international sports competitions
and tournaments whether held in the
Philippines or abroad and sanctioned by
their national sports associations
9. Gains realized from the sale or exchange
or retirement of bonds, debentures or
other certificate of indebtedness with a
maturity of more than 5 years
10.Interest on long-term deposits or
investments in banks (with maturity of 5
years or more) received by individuals
except non-resident aliens not engaged in
business or practice of profession in the
Philippines
11.Interest received by a non-resident
individual or a non-resident corporation
from deposits with the depository banks
under the expanded foreign currency
deposit system
12.Interest on the price of land covered by
CARP (Comprehensive Agrarian Reform
Program)
13.Gains realized by the investor upon
redemption of shares of stock of a mutual
fund company
14.Interoperate dividend, or dividend
received by domestic corporation or
resident foreign corporation from a
domestic corporation
15.Philippines Charity Sweepstake winnings
and Philippine Lotto Winnings
16.Income earned by non-resident and by
alien from sources outside the Philippines
Tax Exemption of Statutory Minimum Wage
Earner (MWE)
Statutory Minimum Wage shall refer t o the rate
fixed by the Regional Tripartite Wage and
Productivity Board (RTWPB) of the Department of
Labour and Employment
An employee who receives additional
compensation such as commissions, honoraria,
fringe benefits, benefits in excess of the
allowable statutory amount of P30,000, taxable
allowances and other taxable income other than
the SMW, holiday pay, overtime pay, night shift
differential pay and hazard pay shall not enjoy
the privilege of being a MWE and therefore
his/her entire earnings are no longer exempt
from income tax
DE MINIMIS are privileges of relatively small
value given by the employer to his employees

De minimis benefits not subject to income tax,

hence, not subject to withholding tax on
compensation income of both managerial and
rank and file employees
a. Monetized unused vacation leave credits
of private employees not exceeding 10
days during the year
b. Monetized value of vacation and sick leave
credits paid to government officials and
employees
c. Medical cash allowance to dependents of
employees not exceeding P750.00 per
employee per semester or P125 per
month
d. Rice subsidy of P1500 or one sack of 50
kg rice per month amounting to not more
than P1500
e. Uniforms and clothing allowance not
exceeding P5000 per annum
f. Actual medical assistance to cover
medical and healthcare needs, annual
medical/executive check-up, maternity
assistance and routine consultations not
exceeding P10,000 per annum
g. Laundry allowance not exceeding P300
per month
h. Employees achievement awards, e.g., for
length of service or safety achievement,
which must be in the form of a tangible
personal property other than cash or gift
certificate, with an annual monetary value
not exceeding P10,000 received by the
employee under an established written
plan which does not discriminate in favour
of highly paid employees
i. Gifts given during Christmas and major
anniversary celebrations not exceeding
P5000 per employee per annum
j. Daily meal allowance for overtime work
and night shift not exceeding 25% of the
basic minimum wage

RULES ON DE MINIMIS AND OTHER

BENEFITS
1. The amount of the de minimis benefits
conforming to the ceiling herein
prescribed shall not be considered in
determining the P30,000 ceiling of 143th
month pay and other benefits excluded
from gross income
2. The excess of the de minimis benefits
over the amount of the prescribed ceilings

can be included as part of the other

benefits not subject to tax as long as the
total amount of the 13th month pay and
other benefits would be confined only to
P30,000 ceiling
3. The excess of de minimis not absorbed by
P30,000 13th month pay and other benefits
is subject to income tax on compensation
4. The MWEs receiving other benefits
exceeding the P30,000 limit shall be
taxable on the excess benefits as well as
on his salaries, wages, and allowances,
just like an employee receiving
compensation income beyond SMW.
TAX EXEMPT CONTRIBUTIONS
Mandatory GSIS, SSS, Philhealth, PAG-IBIG
contributions and union dues of individuals are
considered as tax-exempt contributions.
Voluntary contributions (excess amount of the
mandatory contribution) are subject to
withholding tax
GSIS Educational Plan Premium and GSIS
Memorial Plan premium shall be considered as
part of employees compensation subject to
withholding tax
Benefits under Employers Benefit Rule
A benefit is said to be for the convenience or
advantage of the employer when it is required by
the nature of work, or necessary to the trade,
business, or profession of the employer. Benefit
under employers benefit rule is not subject to
income tax.
Proceeds of Life Insurance
The proceeds of life insurance policies paid to the
heirs or beneficiaries upon the death of the
insured, whether in a single sum or otherwise,
are non-taxable for income tax purposes
Proceeds of life insurance received by the
beneficiary merely represent a reimbursement for
the loss suffered.
The exclusion applies regardless of who the
beneficiary is, whether a family member, or
other individual, corporation or partnership,
except the estate of the insured person which
is subject to ESTATE TAX if the assignment of
beneficiary is revocable.

if the proceeds are held by the insurer under an

agreement to pay interest thereon, the interest
payments shall be included in the taxable income
Proceeds received by the insured person
When the insured person outlived the life
insurance policy and subsequently received the
life insurance proceeds, the proceeds received is
taxable to the extent of the excess of premium
paid.

The proceed s of life insurance taken by a

corporation on the life of an executive-employee
to indemnify it against loss in case of his death do
not constitute taxable income. Accordingly, the
premium expense related thereto is not a
deductible expense of the employer.
If the proceeds are paid to a transferee for a
consideration, the proceeds of life insurance are
taxable to the extent of the amount exceeding
the return of capital.
Gifts, Bequests, and Devises
The value of property acquired by gift, bequest,
devise, or descent shall be excluded from
gross income, provided that INCOME from
such property shall be included in gross
income.
Gift refers to any property legally and validly
transferred from one person to another for free
Bequest refers to personal property transferred
from one person to another by will
Devise real property transferred from one
person to another by will
Determining the taxability of gift, bequest, and
devise:
a. They are subject to TRANSFER TAX if
received without any consideration or
compensation given; otherwise, they are
subject to income tax
b. The value of the property acquired
through donation or legal succession is
exempt from income taxation, but the
income derived from such property is
included for income tax purposes
c. Allowance received based on a
separation agreement is not taxable
income for it represents support of family

d. Amount of the principal paid under a

marriage settlement is not taxable income
e. Amount received by virtue of settlement
of will litigation is not taxable income
f. When payments are made to show
goodwill without legal demandable
obligation to give then the payment is a
gift and not subject to income tax
Compensation for Damages
Examples of non-taxable and taxable damages
recoveries:
1. Nontaxable, if the compensation for
damages is on account of
a. Personal(physical) injuries or sickness
b. Any other damages recovered on
account of personal injuries or sickness
c. Exemplary and moral damages for outof-court settlements including
attorneys fees
d. Alienation of affection, or breach of
promise to marry
e. Any amount received as a return of
capital or reimbursement of expenses
2. Taxable, if the compensation for damages
is a payment for:
a. Actual damages for loss of anticipated
profits
b. Moral and exemplary damages
awarded as a result of breach of
contract
c. Interest for non-taxable damages
above
d. Any damages as compensation for
unrealized income
Retirement Benefits, Pensions , Gratuities,
etc.
A. Retirement benefits with a
reasonable private benefit plan
B. Separation pay beyond the control of
employee
C. Social security retirement benefits
Social security benefits, retirement
gratuities, pensions and other similar
benefits received by resident or nonresident Filipino citizens or aliens who
come to reside permanently in the
Philippines from foreign government
agencies and other institutions, private or
public are non-taxable

SSS monthly pension shall be suspended

upon reemployment or resumption of
self-employment of a retired SSS
member who is less than 65 years old.
SSS funeral benefit equivalent to
P12,000 granted upon the death of an
SSS member is excluded form gross
income
D. Benefits received under United States
Veteran Administration
E. Benefits received as provided by
Social Security Act
F. Benefits received from GSIS

TAX -EXEMPT GOVERNMENT INCOME

Incomes derived form any public utility or from
the exercise of any essential governmental
function accruing to the Government of the
Philippines or to any political subdivisions are
excluded from gross income
With the enactment of RA 9337, the income of
PAGCOR, a GOCC, is now subject to corporate
income tax but exempt from VAT.