Module 2

Regular Income Tax

BACC8
Taxation

to your 2nd module!

This module is a combination of

synchronous & asynchronous learning
and will last for five (5) weeks.

C_Overview_

Atty. Leonicia B.
Garduque
Course Coach

October 4, 2021
Date Initiated
November 6, 2021
Date of Completion

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 REGULAR INCOME TAX

A. LEARNING SCHEDULE: For Weeks 7 to 11

o Synchronous Meeting: BSBA-MM III-A- Thurs, 7:00 PM to 8:30 PM through Google Meet
BSBA-MM III-B- Fri, 7:00 PM to 8:30 PM through Google Meet
BSBA-MM III-E- Sat, 2:30 PM to 4:00 PM through Google Meet
BSBA-MM III-F- Sat, 3:30 PM to 7:00 PM through Google Meet
o Asynchronous Schedule : BSBA-MM III-A- Tues, 7:00 PM to 8:30 PM
BSBA-MM III-- Fri, 5:30 PM to 7:00 PM
BSBA-MM III-E- Sat, 1:00 PM to 2:30 PM
BSBA-MM III-F- Sat, 4:00 PM to 5:30 PM
o Offline Learning: Same class schedule based on printed module.

B. OVERVIEW AND COVERAGE

The module covers an overview of regular income tax, determination of taxable income,
determination of individual income tax and corporate income tax, and on income tax filing.

C. DISCUSSION

REGULAR INCOME TAX

Characteristics of the Regular Income Tax

1. General in coverage – The regular income tax applies to all items of taxable income except
those that are subject to final tax, capital gains tax and special tax regimes.
2. A net income tax – The regular tax is an imposition on residual profits or gains after deductions
for expenses and personal exemptions allowable by law.
3. An annual tax – The regular income tax applies on yearly profits or gains. The gross income
and expenses of the taxpayer are measured using the accounting methods adopted by the
taxpayer and are reported to the government over the accounting period selected by the
taxpayer.
4. Creditable withholding tax – Most items of regular income tax are subject to creditable
withholding tax (CWT). These creditable withholding taxes are advanced taxes that must be
deducted against regular tax due in computing the tax still due to the government.
5. Progressive or proportional tax – The National Internal Revenue Code (NIRC) or Tax Code
imposes a progressive tax on taxable income of individuals while it imposes a flat or
proportional tax of 25% upon the taxable income of corporations.

The Regular Income Tax Model

Gross Income- Inclusions P xxx,xxx

Less: Allowable deductions xxx,xxx
Taxable Income P xxx,xxx

Gross Income – constitutes all items of income that are neither excluded in gross income nor
subjected to final tax or capital gains.

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Exclusions from Gross Income – These pertain to items that are excluded, hence, exempt from
regular income tax.

Excluded income vs. exempt income

Excluded income is also exempt income. Excluded income are those listed by the NIRC as exempt
income from regular tax. The term exempt income includes all income exempt from income tax
whether final tax, capital gains tax or regular income tax. Exclusions from gross income are listed in
the NIRC. Exemption from income may be provided by the NIRC or special laws.

Allowable deductions

Allowable deductions, or simply deductions, are expenses of the conduct of business or

exercise of professions. They are commonly known as business expenses. Individuals that are not
engaged in business cannot claim deductions from gross income. In an effort to simplify the tax
system, the TRAIN law simply exempts P250,000 annual income of the individual income
taxpayer from regular income tax. Thus, exemption is embedded in the income tax table for
individual taxpayers. As such, there is no need to separately deduct personal exemption.

Classification of individual taxpayers

1. Pure compensation income earner
2. Pure business or professional income earner
3. Mixed income earner – an individual earning both compensation and business or professional
income

Taxable Income of Individual Income Taxpayers

The taxable income of individual taxpayers is computed using the Classification and
Globalization Rule.

Classification Rule – Gross income is classified into: a) Compensation income; and b) Business or
professional income.

Compensation income vs. Business income

Compensation income arises from an employer-employee relationship. This relationship is

characterized by a power to retrench giving the purchaser of the service to terminate the arrangement
when he is losing in business. Business income arises from selling of goods or rendering of services
for a profit. In service arrangements where the purchaser of the service has no power to retrench, the
income realized thereon is a business income.

Treatment of other income

Income that are neither compensation income nor business income such as those passive
income are simply classified as other taxable income and are added to gross income from business
and profession.

Allowable deductions
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 Business expenses are deducted against gross income from business or profession. No
deduction is allowed against compensation income since personal expenses of individuals for cost of
living are deemed to be included in the P250,000 blanket exemption in the taxable income.

Other income which is neither compensation nor business nor professional income is simply
added to total gross income from business or profession as “Non-operating income.” If the taxpayer
has no business or professional income, the same shall be added to taxable compensation income
as “other income.”

Taxable income of pure compensation income earner

The taxable compensation income of employee is computed as follows:

Gross compensation income P xxx,xxx

Less: Non-taxable compensation xxx,xxx
Taxable compensation income P xxx,xxx

Non-taxable compensation includes legally mandated deductions and items of

compensation income that are exempted by law, contracts, or treaty from income taxation.

Taxable income of pure business or professional income earner

The taxable compensation income of businessmen or professionals is computed as follows:

Gross income from business/profession P xxx,xxx

Add: Non-operating income xxx,xxx
Total Gross income xxx,xxx
Less: Allowable deductions xxx,xxx
Taxable net income P xxx,xxx

Globalization rule for mixed income earner

The income of mixed income earner from both sources is simply globalized or totaled. A
negative net income or net loss when deductions exceed gross income from business or profession
shall not be offset against taxable compensation income because deductions are expenses of
business or profession and are properly deductible only against gross income thereto, whereas no
expense is deductible against taxable compensation income.

Illustration: Individual income taxpayer

Case 1 Case 2 Case 3 Case 4
Compensation income P300,000 P300,000 P300,000
Non-taxable compensation 30,000 30,000 30,000
Gross business income P400,000 400,000 200,000
Deductions 250,000 250,000 250,000
Other income 20,000 20,000 20,000 20,000

Taxable income shall be determined in each of the above case as follows:

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Case 1: A compensation earner with other income

Gross compensation income P 300,000

Less: Non-taxable compensation 30,000
Taxable compensation income P 270,000
Add: Other gross income 20,000
Taxable income P 290,000

Case 2: A business income earner with other income

Gross business income P 400,000

Add: Other gross income 20,000
Total gross income P 420,000
Less: Allowable deductions 250,000
Taxable income P 170,000

Case 3: A mixed income earner with other income

Gross compensation income P 300,000

Less: Non-taxable compensation 30,000
Taxable compensation income P 270,000

Gross business income P 400,000

Add: Other gross income 20,000
Total gross income P 420,000
Less: Deductions 250,000
Taxable net income 170,000
Taxable income P 440,000

Case 4: A mixed income earner - with net loss on business or profession

Gross compensation income P 300,000

Less: Non-taxable compensation 30,000
Taxable compensation income P 270,000

Gross business income P 200,000

Add: Other gross income 20,000
Total gross income P 220,000
Less: Deductions 250,000
Net loss (P 30,000)
Taxable income P 270,000

A net loss may be carried over as a deduction against net income of the succeeding three
years. This is referred to as net operating loss carry over or NOLCO. But, we will not discuss this topic
in the meantime.

Taxable Income of Corporate Income Taxpayers

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 The taxable income of corporations is computed in the same manner as pure business or
professional income earner.

Determination of Gross Income from Business or Profession

A. Business selling goods

The gross income from business on the sale of goods is computed as:

Sales P xxx,xxx
Less: Cost of goods sold (cost of sales) xxx,xxx
Gross Income P xxx,xxx

Cost of sales – pertains to the acquisition cost of the goods sold for merchandising or the
manufacturing cost of the goods sold in the case of manufacturing.

Cost of sale of a trading business

The cost of goods may be determined by the specific identification using perpetual inventory
system with the aid of point-of-sale (POS) machines or by the periodic inventory system using the
following formula:

Beginning inventory P xxx,xxx

Purchases, net of return and allowances xxx,xxx
Freight in xxx,xxx
Total goods available for sale P xxx,xxx
Less: Ending inventory xxx,xxx
Cost of goods sold P xxx,xxx

Under the perpetual system, the cost of goods sold is determined through codes of the goods
sold or by stock cards indicating the costs of the goods sold. Under the periodic system, the cost of
goods sold is established by counting the inventories. The cost of missing items at every reporting
date is considered sold. For purposes of costing, the freight costs of the goods are allocated to all
units purchased.

Cost of sales of a manufacturing business

The cost of goods sold of a manufacturing business is computed in almost the same way
with those of a trading business.

Illustration for the determination of cost of sales and gross income

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 A taxpayer had the following data during the year:

Gross sales P 4,000,000 Beginning inventory P 600,000

Sales discount 100,000 Purchases 2,500,000
Sales return 200,00 Purchase returns and 150,000
allowances
Freight in 200,000
Ending inventory 800,000

The cost of sales shall be computed as follows:

Beginning inventory P 600,000

Purchases, net of return and allowances (P2.5m – P150K 2,350,000
Freight in 200,000
Total goods available for sale P3,150,000
Less: Ending inventory 800,000
Cost of sales P2,350,000

The business gross income shall be computed as follows:

Sales (P4M – P100K – P200K) P 3,700,000

Less: Cost of sales 2,350,000
Gross income P 1,350,000

B. Business selling services

The gross income from sale of services or exercise of profession is measured as follows:

Revenues or gross receipts P xxx,xxx

Less: Cost of services xxx,xxx
Gross income P xxx,xxx

Service providers using the accrual basis shall report their revenues while those using the
cash basis shall report their gross receipts or collections.

Cost of services – pertains to all direct cost of rendering the services such as cost of labor, materials
and overhead costs. The cost of services should be distinguished from the indirect costs, such as
general administration and marketing expenses of business. These two are separately separated
under the deduction category “Regular allowable itemized deductions.”

Illustration of determination of cost of service and gross income for business selling
services
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 A practicing auditor had the following income and expenses during the year:

Billing for services rendered P4,500,000 Depreciation of office equipment 80,000

and out-of-pocket costs
Salaries of audit staff 1,400,000 Depreciation of laptops issued 50,000
to audit staff
Salaries of administrative 200,000 Insurance expense on office 20,000
employees properties
Transportation expenses to 12,000 Rent expenses allocable to 400,000
and from clients workspaces
Supplies used in various 250,000 Rent expenses allocable to 50,000
engagements administrative offices
Supplies and general utilities 120,000 Bad debt expenses on non- 100,000
paying clients

The cost of services shall include only those directly incurred or related gross revenue from
the rendition of services such as:

Salaries of audit staff P 1,400,000

Transportation expenses to and from clients 12,000
Rental expense on staff workspaces 400,000
Supplies used in various engagements 250,000
Depreciation of laptops 50,000
Total cost of services P 2,112,000

The gross income shall be computed as follows:

Revenue P 4,500,000
Less: Cost of services 2,112,000
Gross Income P 2,388,000

INCOME TAX REPORTING FORMAT

A. Reporting Format for Individuals Engaged in Business or Profession

Net Sales/Revenue/Receipts/Fees P xxx,xxx

Add: Other taxable income from operation not subject to final tax xxx,xxx
Total sales/revenue/receipts/fees P xxx,xxx
Less: Cost of sales or services xxx,xxx
Gross income from business/profession P xxx,xxx
Add: Non-operating income xxx,xxx
Total Gross Income P xxx,xxx
Less: Allowable deductions xxx,xxx
Net income P xxx,xxx

Sales, revenue, receipts, and fees distinguished

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 Revenue is a general term which pertains to the gross inflow of benefits (total return) arising
from the primary operations of the business. Sales pertains to revenue from the sale of goods,
while fees pertains to revenue from the sale of service. Receipts pertains to cash collection from the
sale of goods or services.

Revenue vs. gross income

Revenue is a gross concept to the total return in a transaction which includes the return of
capital and the return on capital. Gross income is a net concept pertaining to the return on capital in
a transaction. Gross income is net of the cost of sales or cost of services.

Other taxable income from operations

Other taxable income from operations includes revenues or receipts from incidental or
secondary operations aside from the primary operations.

Examples:

1. A school has tuition fees as primary revenue, but its income from its bookstore, canteen or
student dormitories constitutes other operating revenues.
2. A manufacturing firm has its gross income from the sale of finished goods as its primary
revenue, but its income from scrap sales constitutes other operating revenues.
3. A private hospital has patient service fees as its primary revenue, but may have room rental
and sale of medicines as its other operating revenues.
4. A dormitory has boarding fees as its primary revenue, but may have laundry fees and canteen
become as other operating revenues.
5. A retail store has its sales of merchandise as its primary revenue, but may earn consignment
commission income as other operating revenues.
6. A bus transport company has the receipts from passengers and baggage as primary revenue,
but may earn income from bus stop restaurants and washrooms as other operating revenues.

Non-operating income

Non-operating income includes all other items of gross income such as:

1. Gains from dealings in properties

Dealings in properties pertain to the sale, exchange and other disposition of properties by the
taxpayer, which is not covered by capital gains tax. Being net of costs, these are gross income items
rather than revenue. They are not part of “Sale/Revenues/Receipts/Fees” but of “Non-operating
income” of the individual taxpayer.

2. Income distribution from general professional partnership, taxable trust or estate, or from an exempt
joint venture

Income distribution from these entities are not revenue, but items of gross income, hence,
included as part of the non-operating income of individuals.

3. Casual active income

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 This includes active income from isolated or one-time transactions such as casual carpentry
income of a person not engaged in carpentry business. Any expense on casual transactions is set off
with the casual income. The net gain or income is a non-operating income.

4. Passive income not subject to final tax

This includes passive income not connected with the business of the taxpayer and is not
subjected to final tax such as interest on advances to employees and dividends from foreign
corporations. Similar to casual income, these do not arise from the regular business operations,
hence, classified as non-operating income.

Illustration:

An individual taxpayer who is using the accrual basis in his manufacturing business reported
the following results of operations in the preceding year:

Sales, net of returns and discounts P 4,000,000

Cost of sales 1,800,000
Dividend income, net of final tax 36,000
Business expenses 1,600,000
Gain on sale of old equipment 100,000
Sale of scrap metals 200,000
Interest income on employee advances 45,000
Gain on sale of domestic stock directly to a buyer 10,000

The business income of the individual will be presented in the income tax return as follows:

Net Sales/Revenues/Receipts/Fees P 4,000,000

Add: Other taxable income from operations- Scrap sales 200,000
Total Sales/Revenues/Receipts/Fees P 4,200,000
Less: Cost of sales or services 1,800,000
Gross Income from Business/Profession P 2,400,000
Add: Non-operating income
Gain on sale of equipment P 100,000
Interest income on employee advances 45,000 145,000
Total Gross Income P 2,545,000
Less: Allowable deductions (Business expense) 1,600,000
Net Income P 945,000

Income items subject to final tax like the dividends and capital gains on the stocks are
excluded in the computation of the gross income subject to regular income tax.

B. Reporting Format for Corporate Taxpayers

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 Net Sales/Revenue/Receipts/Fees P xxx,xxx
Less: Cost of sales or services xxx,xxx
Gross income from operations P xxx,xxx
Add: Other taxable income not subject to final tax xxx,xxx
Total Gross Income P xxx,xxx
Less: Allowable deductions xxx,xxx
Net income P xxx,xxx

For corporate taxpayers, revenues or receipts from secondary or incidental operations will be
included under the classification “Sales/Revenue/Receipts/Fees”

Other taxable income not subject to final tax

This category includes other items of gross income whether or not arising from the
operations of the corporation such as gains from dealings in properties, income distribution from an
exempt joint venture, and other passive income not subject to final tax.

Illustration

Assuming the same data from the previous illustration except that the taxpayer is a
corporation:

Sales, net of returns and discounts P 4,000,000

Cost of sales 1,800,000
Dividend income, net of final tax 36,000
Business expenses 1,600,000
Gain on sale of old equipment 100,000
Sale of scrap metals 200,000
Interest income on employee advances 45,000
Gain on sale of domestic stock directly to a buyer 10,000

The business income shall be reported as follows:

Net Sales/Revenues/Receipts/Fees P 4,200,000

Less: Cost of sales or services 1,800,000
Gross Income from operations P 2,400,000
Add: Other taxable income not subject to final tax
Gain on sale of equipment P 100,000
Interest income on employee advances 45,000 145,000
Total Gross Income P 2,545,000
Less: Allowable deductions (Business expense) 1,600,000
Net Income P 945,000

The difference in presentation between individuals and corporations is necessitated by the

Optional Standard Deduction (OSD). The basis of the OSD for individual taxpayers is the total of
revenues or receipts from operations while the basis of the OSD for corporations is total gross income
subject to regular income tax whether or not they arise from the regular business operations.

Separate bookkeeping for business and professional practice

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 Individual taxpayers engaged in business or exercise of a profession must maintain a separate
record of their transactions from business or professional transactions. The personal transactions of
the individual taxpayer must not be mixed with the transactions of the business or professional
practice.

This is important in the tax treatment of expenses. The personal expense of the taxpayer
cannot be deducted against the gross income of the business. The allowable personal exemption
fixed by law for individual taxpayers is in lieu of all the actual personal, family, and cost of living
expenses of the taxpayer.

TYPES OF REGULAR INCOME TAX

1. Individual income tax

2. Corporate income tax

A. INDIVIDUAL INCOME TAX

The individual income tax or progressive income tax is determined by reference to a tax table
of progressive tax rates:

The Income Tax Table for Individual Taxpayer

Taxable Income per Year Income Tax Rate

P250,000 and below 0%
Above P250,000 to P400,000 20% of the excess over P250,000
Above P400,000 to P800,000 P30,000 +25% of the excess over P400,000
Above P800,000 to P2,000,000 P130,000+30% of the excess over P800,000
Above P2,000,000 to P8,000,000 P490,000+32% of the excess over P2,000,000
Above P8,000,000 P2,410,000+35% of the excess over P8,000,000

Scope of the progressive tax

The progressive tax covers all individuals including taxable estates and trusts except NRA-
NETB which is subject to 25% final tax on gross income.

Illustration 1: Income Tax Computation

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 A resident citizen which has a compensation income of P1,250,000 within the Philippines and
P150,000 from abroad.

The income tax due shall be computed as follows:

Tax Due
Taxable compensation income P1,400,000
Less: Lower limit of the income bracket 800,000 P 130,000
Where the taxable income qualifies
Excess: (P1,400,000 less 800,000) P 600,000
Multiply by bracket marginal rate 30% 180,000
Total Income tax due P310,000

Taxable Income per Year Income Tax Rate

P250,000 and below 0%
Above P250,000 to P400,000 20% of the excess over P250,000
Above P400,000 to P800,000 P30,000 +25% of the excess over P400,000
Above P800,000 to P2,000,000 P130,000+30% of the excess over P800,000
Above P2,000,000 to P8,000,000 P490,000+32% of the excess over P2,000,000
Above P8,000,000 P2,410,000+35% of the excess over P8,000,000

Recall that a resident citizen is taxable on global income (i.e. P1,250,000+150,000)

Illustration 2: Income Tax Computation

A resident alien which has a compensation income of P2,200,000 within the Philippines and
P1,250,000 from abroad.

The income tax due shall be computed as follows:

Tax Due
Taxable compensation income P2,200,000
Less: Lower limit of the income bracket 2,000,000 P 490,000
Where the taxable income qualifies
Excess: (P2,200,000 less 2,200,000) P 200,000
Multiply by bracket marginal rate 32% 64,000
Total Income tax due P554,000

Taxable Income per Year Income Tax Rate

P250,000 and below 0%
Above P250,000 to P400,000 20% of the excess over P250,000
Above P400,000 to P800,000 P30,000 +25% of the excess over P400,000
Above P800,000 to P2,000,000 P130,000+30% of the excess over P800,000
Above P2,000,000 to P8,000,000 P490,000+32% of the excess over P2,000,000
Above P8,000,000 P2,410,000+35% of the excess over P8,000,000

Recall that a resident alien is taxable only on Philippine income.

The Optional 8% Income Tax

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 The TRAIN law introduced an optional income tax for self-employed and/or professionals
(SEP) wherein they can opt to be taxed at 8% of sales or receipt and other non-operating income.

The 8% income tax shall be in lieu of the:

a. Progressive income tax computed under individual tax table, and

b. 3% percentage business tax on sales or receipts

The 8% income tax is a form of a bundled tax which enables one-time compliance for two
taxes which would otherwise require separate filing and payments.

B. CORPORATE INCOME TAX

The corporate income tax, commonly referred to as the regular corporate income tax (RCIT)
is generally a proportional or flat tax at a rate of 25% on taxable income for domestic of foreign
corporation.

However, a lower 20% proportional tax on taxable income is imposed on domestic micro-,
small-, and medium enterprises (MSMEs) with not more than P100 million assets, excluding land,
and not more than P5 million taxable income.

The RCIT applies to any corporation other than those:

a. Subject to final tax such as non-resident foreign corporation and FCDU (foreign
currency deposit units) interest income not subject to final tax
b. Special corporations or those subject to preferential (i.e. lower) tax rates or special
regimes
c. Exempt corporations

Illustration for the determination of Income Tax due of a corporation

A corporation has a net income of P1,200,000 in the Philippines and P800,000 from abroad.

1. Assuming the corporation is a large domestic corporation, the income tax due shall be computed
as follows:

Taxable income (within and without: P1.2M+800K) P2,000,000

Multiply by tax rate 25%
Income tax due P 500,000

2. Assuming the corporation is a domestic MSME, the income tax due shall be computed as follows:

Taxable income (within and without: P1.2M+800K) P2,000,000

Multiply by tax rate 20%
Income tax due P 400,000

Recall that domestic corporations are taxable on global income. Also, if the taxable income is
more than P5 million, the 25% tax rate is applicable without regard to whether the domestic
corporation is a MSME or a large corporation.
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3. Assuming the corporation is a resident foreign corporation, the income tax due shall be computed
as follows:

Taxable income (within the Philippines) P1,200,000

Multiply by tax rate 25%
Income tax due P 300,000

Recall that resident foreign corporation is taxable on Philippine income. There is also no
distinction between large corporation or MSME when it comes to foreign corporation. The 25%
proportional tax simply applies.

The Minimum Corporate Income Tax

Corporate taxpayers are normally subject to a minimum tax, computed as 2% of total gross
income subject to regular tax. The minimum tax is temporarily reduced to 1% this pandemic from
July 1, 2020 to June 30, 2023. Even if corporations are losing in business, they are subject to the
minimum tax.
Special Corporations

Special corporations are those enjoying lower tax rates but not 0%, such as private schools,
non-profit hospitals and PEZA or TIEZA-registered enterprises.

Exempt Corporations

Exempt corporations are those enjoying 0% tax rate with no tax dues such as government
agencies, non-profit organizations with no taxable income, cooperatives, and those registered with
the Board of Investments (BOI) enjoying income tax holiday or ITH.

INCOME TAX RETURNS

Income Tax Returns

Tax Return Form Individual taxpayers

Form 1700 Purely employed taxpayer
Form 1701A Purely in business or profession, using itemized, OSD or
opting to the 8% optional income tax
Form 1701 Mixed income earners, Estates and Trusts
Corporate income taxpayers
Form 1702-RT Corporations subject only to the 25% regular income tax
Form 1702-MX Corporations subject to special or a combination of tax
rates
Form 1702-EX Corporations that is exempt with no tax due

Exempt corporations are required to report their results of operations through BIR Form 1702-
EX even if they do not have taxable income. They are mandated to itemize their deductions in their
income tax return. The rule is intended to assist the BIR in monitoring compliance of exempt
corporations with their withholding tax obligations and to provide for a mechanism to identify income
earned by third parties.

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 Exempt corporations with gross income subject to the regular corporate income tax or special
rate shall file BIR Form 1702-MX.

Deadline of filing the income tax return

The income tax return is due for filing on the 15 th day of the fourth month following the taxable
year of the taxpayer. The income tax due shall be paid upon filing.

Rounding rules in the income tax returns

The requirement for entering centavos in the latest version of the income tax return has been
eliminated. If the amount of centavos is 49 or less, the centavos are dropped down. If the amount is
50 centavos or more, it is rounded up to the next peso. Hence, an amount for P100.49 shall be
entered in the income tax return as P100. An amount of P100.50 shall be rounded as P101.

Required attachment in the Annual Income Tax Return

1. Certificate of Independent CPA – if annual sales, earnings, receipts or output exceed

P3,000,000)
2. Supplemental form for taxpayers with multiple activities per tax regime
3. Account information form and financial statements (FS) showing:
a. Sales/receipts/fees
b. Cost of sales/services
c. Non-operating and other taxable income
d. Itemized deductions (if taxpayer did not avail of OSD)
e. Taxes and licenses
f. Other information prescribed to be disclosed in the FS
4. Statement of management responsibility
5. Certificate of income payments not subjected to Withholding Tax (BIR Form 2304)
6. Certificate of creditable withheld at source (BIR Form 2307)
7. Duly approved tax debit memo, if applicable
8. Proof if prior year’s excess credits, if applicable
9. Proof of foreign tax credits, if applicable
10. For amended return, proof of tax payment and the return previously filed
11. Certificate of tax treaty relief/Entitlement issued by the concerned Investment Promotion
Agency (IPA)

Quarterly filing of Income Tax Return

Corporations and individuals engaged in business and those engaged in the practice of a
profession are required to file three quarterly returns aside from the annual consolidated income tax
return. Individual taxpayers engaged in business or practice of profession shall file their quarterly
income tax returns using BIR Form 1701Q. Corporations shall file their income tax returns using BIR
Form 1702Q. Taxpayers make estimated quarterly tax payments. These quarterly tax payments are
claimed as tax credit (deductions) to the annual consolidated income tax due of the taxpayer.

Deadline for Quarterly Income Tax Returns

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 Quarterly Income Individual Taxpayer Corporations
Tax Returns
First Quarter ITR May 15, same year 60 days end of 1st Quarter
Second Quarter ITR August 15, same year 60 days end of 2nd Quarter
Third Quarter ITR November 15, same year 60 days end of 3rd Quarter

Quarterly income tax returns of individuals engaged in business or profession are due 45 days
from the end of the first three quarters whereas the quarterly income tax returns of corporate
taxpayers are due 60 days from the end of quarter.

Frequency of reporting per taxpayer type

Taxpayer Frequency of Tax

Reporting
Pure compensation income earner Annual
Purely engaged in business or profession Quarterly and Annual
Mixed income earner Quarterly and Annual
Corporations Quarterly and Annual
The substituted filing system for employees

Pure compensation income earners may be relieved from the obligation to file their annual
income tax return if they have no taxable income from other sources other than their lone employer.
The employee may avail of the substituted filing system wherein the employer shall withhold the
income tax of the employee’s compensation.

If the employer correctly withheld the tax due of the employee through the withholding tax on
compensation, the employee need not file his BIR Form 1700 anymore, since there would be no
residual tax due or tax refundable. The Form 1700 is required if the employee has other taxable
income or has more than one employer, either concurrent or successive, during the year.

- END OF DISCUSSION -

D. STUDENT ACTIVITY –

1. Reviewer Notes. Write your REVIEWER NOTES based on

the discussions above.

2. For Midterm Recitation 1 – Go to Lawphil, Chan

Robles or Supreme Court of the Philippines website. Do a
research on cases related to exclusions from the gross
income or any matter related to taxable income. Choose one (1) case which was
promulgated for the period January 2010 to present, and write a case digest. Follow the
format provided – FACTS, ISSUE, HELD. Must be in Word format, short bond paper, font
Arial, size 12, spacing 1.5, 1-inch margin each side. Submit in the Google Classroom.
Deadline: October 23, 2021, Sat, 11:00 PM. Also, forward a copy of your case digests to the
Class President for consolidation for email to me.

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2. For Midterm Project – Go to Lawphil, Chan Robles or Supreme Court of the Philippines website.
Do a research on cases related to topics on discussed in this module on taxation. Choose two (2)
cases which were promulgated for the period January 2010 to present, and write case digests.
Follow the format provided – FACTS, ISSUE, HELD. Must be in Word format, short bond paper, font
Arial, size 12, spacing 1.5, 1-inch margin each side. Submit in the Google Classroom. Deadline:
October 30, 2021, Sat, 11:00 PM. Also, forward a copy of your case digests to the Class President
for consolidation for email to me.

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