COLLEGE OF ACCOUNTANCY

C-BAC7 Taxation (Income Taxation)

Second Semester AY 2021-2022

Course : C- BAC7: Taxation (Income Taxation)

Module : Module No. 11: TAX PAYMENTS

Time Frame : 3.0 hours

A. Overview

This learning material discusses the applicable income tax option available to the individual
taxpayers, computation of the tax due and tax payable.

This is relevant to the students because this will help them fully understand the integrated tax
rules in computing the taxable income, tax payable, as well as filing the proper income tax returns
of taxpayers.

The student will be able to achieve the desired learning outcomes by devoting time and effort in
studying this material, listening and participating actively in the online discussion, and
accomplishing the tasks assigned in the Classwork section of the Google Classroom for this course.

B. Desired Learning Outcomes

After studying this module, you should be able to:

1. Compute the tax due and tax payable of individual taxpayers.

2. Determine the forms to be used in filing income tax return.

3. Determine where and where to file and pay income tax.

C. Values Integration

In studying this module, it is hoped that you will be able to develop and manifest the following UA
Core Value/s:
✓ Servant Leadership

✓ Integrity

✓ Excellence

✓ Service Orientation

✓ Teamwork

✓ Obedience

✓ Open Communication
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COLLEGE OF ACCOUNTANCY
C-BAC7 Taxation (Income Taxation)
Second Semester AY 2021-2022

D. Content/Discussion

Lesson 1: individual Income Taxation

The Regular Income Tax for Individuals is determined through the following tax table:

Year 2018 to Year 2022

Taxable Income Tax Due

P250,000 and below None (0%)

Above P250,000 to P400,000 20% of excess above P250,000

Above P400,000 to P800,000 P30,000 + 25% of excess over P400,000

Above P800,000 to P2,000,000 P130,000 + 30% of excess over P800,000

Above P2,000,000 to P8,000,000 P490,000 +32% of excess over P2,000,000

Above P8,000,000 P2,410,000 + 35% over excess over

P8,000,000

Year 2023 Onwards

Taxable Income Tax Due

P250,000 and below None (0%)

Above P250,000 to 400,000 15% of excess above P250,000

Above P400,000 to P800,000 P22,500 + 20% of excess over P400,000

Above P800,000 to P2,000,000 P102,500 + 25% excess over P800,000

Above P2,000,000 to P8,000,000 P402,500 + 30% of excess over P2,000,000

Above P8,000,000 P2,205,500 + 35% of excess over P8,000,000

Repeal of the personal exemption

The TRAIN law repealed the concept of personal exemption in order to simplify the tax system.
However, it cannot be denied that individuals incur personal expenses such as cost of living in order to
survive. Theoretically, the law must have to make provision for this in order not to kill the goose that
lays the golden egg.

In lieu of personal and cost of living expenses of individuals, the TRAIN law provides for the P250,000
annual income exemption for every individual. This individual amount is inserted in the tax table and
it is automatically granted for every individual subject to regular income tax. There is no more
separate accounting of personal exemptions.
Taxpayers subject to Progressive Income Tax
The progressive income tax for individuals covers the following:
1. Citizen
a. Resident Citizen
b. Non-resident citizen
2. Aliens
a. Resident Alien
b. Non-resident alien engaged in business
3. Taxable estate
4. Taxable Trust

Classification of Individual Income Taxpayers

For purposes of the regular tax, individual income taxpayers are classified as:

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COLLEGE OF ACCOUNTANCY
C-BAC7 Taxation (Income Taxation)
Second Semester AY 2021-2022

1. Pure compensation income earner

2. Pure business or professional income earner
3. Mixed income earner

Pure Compensation Earner

The compensation income employees, except minimum wage earners, is subject to withholding tax on
compensation. Every employer is mandatorily required to deduct the withholding tax from the
compensation income of their employees.

Treatment of withholding tax on compensation

1. Full payment – if the employee has no other income and the tax is correctly withheld 2. Tax
Credit – if the employee has other taxable income or if the tax is not correctly withheld

Employees with no other income

If the employee has no other taxable income, he may avail of the substituted filing system. Under this
system, the withholding tax on compensation is considered enough evidence of tax compliance of the
employee, provided that the employer withheld the correct tax.

Conditions of the Substituted Filing System

1. The employee received purely compensation income during the year
2. The employee received the income from only one employer in the Philippines during the taxable
year
3. The amount of tax due from the employee at the end of the year equals the amount of tax withheld
by the employer (i.e., correct tax is withheld).
4. The employee’s spouse also complies with all 3 conditions stated above.
5. The employer files the annual information return (BIR form No. 1604-CF).
6. The employer issues BIR Form 2316 to each employee.

Consolidated or Adjustment Return

Consolidated or adjustment return is needed when:
1. Correct tax is not withheld
2. Employee or his spouse has other income

Correct tax due not withheld by employer

The correct tax due of the employee will least likely to be withheld by the employer in the following
cases:
1. Concurrent employment
2. Successive employment
3. Incurrence of error by the employer

An annual return needs to be filed to adjust due to the correct amount of tax. This is referred to as an
adjustment return. The employee shall claim Form 2316 as tax credit and pay residual tax due or claim
excess withheld amount as tax credit or tax refund.

Employees has other taxable Income

Employees other income subject to regular tax may come from:
a. Casual sources
b. Engagement in business or practice of a profession

Faculty: RODELIA R. TALAVERA Page 3

COLLEGE OF ACCOUNTANCY
C-BAC7 Taxation (Income Taxation)
Second Semester AY 2021-2022

If the employee has other taxable income, the employee is mandatorily required to file an annual
income tax return to incorporate other income sources in his return. This referred as a consolidated
income tax return.

The consolidated income tax return may either be:

1. BIR Form 1700 – if the employee is not engaged in business or profession 2. BIR form 1701 for
mixed income earners – if the employee is also engaged in business and or profession

The withholding tax on compensation (BIR Form 2316) given by the employer shall be claimed as tax
credit.

Pure Business and/or Professional Income Earner

Individual taxpayers engaged in business or practice of profession shall file quarterly income tax
returns (BIR Form 1701Q) and annual tax return:
Quarterly Tax Returns Deadline

1st Quarter ITR – 1701 Q May 15 of the same calendar year

2nd Quarter IR – 1701 Q August 15 of the same calendar year

3rd Quarter ITR – 1701 Q November 15 of the same calendar year

Annual ITR – 1701A April 15, next year

The taxable income from business or profession may be computed using:

1. Itemized deduction
2. Optional Standard Deduction

Excess quarterly estimated tax

The excess quarterly estimated tax payments over the quarterly tax due may, at the option of the
taxpayer, be carried forward to quarters of the succeeding taxable year or claimed through tax refund.
Once the option to carry-over is made, it becomes irrevocable for that period.
 The option to refund
The option to refund may be in the form of cash or tax credit certificate. If the option to refund is
selected, the excess refundable amount should not be carried over as tax credit to the succeeding
quarters of the following year.

Mixed Income Earner

The compensation income of mixed income earners will be subjected to the withholding tax on
compensation by their employers. Mixed income earners would report their business or professional
income on a quarterly basis under form 1701Q. The compensation income shall not be reported in the
quarterly return. It shall be included only in the annual consolidated return. Mixed income taxpayers
shall use BIR Form 1701.

The 8% Income Tax Option

The TRAIN law introduced a new tax scheme for individual taxpayers- the 8% optional income tax.
The option to be taxed at 8% must be indicated in the first quarter income tax return or in the first
quarter percentage tax return. When made, the option shall irrevocable for the calendar year.

Faculty: RODELIA R. TALAVERA Page 4

COLLEGE OF ACCOUNTANCY
C-BAC7 Taxation (Income Taxation)
Second Semester AY 2021-2022

Nature:
1. A bundled tax – it is in lieu of:
a. Regular income tax, determined through income tax table
b. 3% general percentage tax (now temporarily reduced to 1% during this pandemic)

2. An annual option
It is valid for as long as long as the taxpayer remained as non-VAT taxpayer during the year. It will
be invalidated in favor of the regular income tax once the taxpayer becomes a VAT taxpayer during
the year.

3. Paid quarterly and annually

Scope:
a. Pure business or professional income earners
b. Mixed income earners

Covered Businesses:
Only vatable businesses who are below the P3M annual VAT threshold and did not register as VAT
taxpayer can opt to be taxed under the 8% income tax.

Thus, the option is not available to:

1. VAT-registered business taxpayers

2. VAT-EXEMPT business taxpayers such as:
a. Exempt businesses
b. Businesses specifically subject to other percentage taxes
3. Individual receiving income not subject to business tax, such as:
a. Partner receiving share in net income of a general professional partnership
b. Co-owners receiving share of income in co-owned properties
c. Ventures receiving share in net income of an exempt joint venture
d. Heirs or beneficiaries of trust receiving income distribution from estates or trusts
Tax obligation of individual non-VAT Taxpayers:
Regular Tax Option 8% Income Tax Option

Regular income tax 3 quarterly 1701Q and 1 3 quarterly 1701Qs and 1

annual 1701 annual 1701A

Percentage tax 4 quarterly 2551Q None

VAT – registered taxpayers pay VAT and regular income tax.

Tax Basis:
The 8% optional income tax shall be based upon the gross sales or gross receipt of the individual
taxpayer that is subject to 3% percentage tax. Other income subject to regular tax are added to the
basis.

Faculty: RODELIA R. TALAVERA Page 5

COLLEGE OF ACCOUNTANCY
C-BAC7 Taxation (Income Taxation)
Second Semester AY 2021-2022

Pure business or professional income earner

For pure business or professional income earners, the use of the 8% in income tax would effectively
deny the individual taxpayer of his P250,000 annual income exemption, the same being embedded in
the regular tax table. Due to this, the 8% income tax shall be computed from the basis net of P250,000.

Mixed Income Earners

Compensation income is not subject to business tax. Hence, it cannot be subjected to the 8% income
tax. Due to this, the income tax due from compensation shall be separately determined using the
income tax table while the 8% income tax from the business or profession shall be separately
computed.

WHEN AND WHERE TO FILE AND PAY TAX

1. For Electronic filing and Payment System (eFPS) taxpayers

The return shall be e-filed and the tax e-paid on or before the 15 th day of April of each year
covering the income for the preceding year using the eFPS facilities through the BIR Website.

2. For non - Electronic Filing and Payment System (non-eFPS)

The return shall be filed and the tax paid on or before the 15 th day of April of each year covering
the income for the preceding year with:

a. Any authorized agent banks (AAB) located within the jurisdiction of the Revenue District Officer
(RDO) where the taxpayer is registered.

b. Revenue Collection Officer (RCO) under the jurisdiction of the RDO where the taxpayer is
registered, if there is no AAB.

In case no payment returns the same shall be filed with the RDO where the taxpayer is registered
of has legal residence or place of business in the Philippines or with the concerned RCO under the
dame RDO.
 A no payment return pertains to tax returns without tax payable such as those with negative or
zero taxable income, those with exempt or no operations during the period, those with tax
creditable or refundable, or those with balance payable only on the second installment.

3. For non-residents taxpayers

In case the taxpayer has no legal residence or place of business in the Philippines, the return shall
be filed with the Office of the Commissioner or Revenue District Office No. 39, South Quezon City.

INSTALLMENT PAYMENT OF THE REGULAR INCOME TAX

When the tax due is in excess of P2,000, individual taxpayers (except corporations) may elect to pay
the tax in two-equal installments:

a. The first installment shall be paid at the time the returned is filed.
b. The second installment is due on or before October 15 following the close of the calendar year.

If any installment is not paid on or before the date fixed for its payment, the whole amount of the tax
unpaid become due and payable together with the delinquency penalties.

Faculty: RODELIA R. TALAVERA Page 6

COLLEGE OF ACCOUNTANCY
C-BAC7 Taxation (Income Taxation)
Second Semester AY 2021-2022

WHO SHALL FILE THE INCOME TAX RETURN?

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.

WHO ARE NOT REQUIRED TO FILE INCOME TAX RETURN?

1. Minimum wage earners
2. An individual whose gross income does not exceed P250,000
3. An individual whose compensation income derived from one employer does not exceed P60,000
and the income tax on which has been correctly withheld.
4. Individual whose income has been subjected to final withholding tax as in the case of non-resident
aliens not engaged in trade or business.
5. Pure compensation earners qualified under the substituted filing system.

AMENDMENT OF INCOME TAX RETURN

The amount indicated by the taxpayers in the income tax return are his assertions. The same are
deemed final unless amended by the taxpayer. Within three years from the required date of filing of
the return, the taxpayer can amend the same so long as no Letter of Authority for Investigation issued
by the BIR for the examination of his return.

E. Assessment of Learning
 For the self-regulated assessment of what you had learned from this module, please accomplish
the progress check/activity posted in our Google Classroom and submit it on or before due date.

Faculty: RODELIA R. TALAVERA Page 7

COLLEGE OF ACCOUNTANCY
C-BAC7 Taxation (Income Taxation)
Second Semester AY 2021-2022

References

Banggawan, R. B. (2021). Income Taxation Laws, Principles and Applications. Baguio City: Real
Excellence Publishing.

Ampongan, O. E. (2015). CPA Review in Taxation. Iriga City, Philippines: Ampongan, Omar Erasmo G.

De Leon, H. S., & De Leon, H. M. (2016). The Fundamentals of Taxation. Manila City, Philippines: REX
Book Store.

De Leon, H. S., & De Leon, H. M. (2016). The Law on Income Taxation (with Illustration, Problem and
Solution. Manila City, Philippines: REX Book Store.

Duncano, D. A. (2017). Easy Guide to Taxation for Entrepreneurs. Mandaluyong City: Anvil Publishing,
Inc.

Duncano, D. A. (2016). National Internal Revenue Code of 1997 As Amended Updated with
Annotations. Mandaluyong City, Philippines: Anvil Publishing, Inc.

Congratulations for having completed this module!

Modules prepared by : Maylene L. Evangelista

Reviewed/updated by : Rodelia R. Talavera

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