4 - Regular Income Taxation: Individuals

cnapter 1

aAPTER 14
~EGULAR INCOME TAXATION: INDIVIDUALS
er overview and Objectives
chaPt
;;;·;;·;~i~~--;~i~-~~-~~~-t-~-~~-~~~~--~;~~;;~-~-~r-~~ct~~i-~:~~;--~;~-~i~~~~;-~ ~~~-;~~-;~
revious chapters. This chapter aims to provide an integration of all income tax
~ les which are s pecifically relevant to individual taxpayers in order to simulat e a
closer to reality depiction of individual income taxation in practice.
After this chapter, readers are expected to d emonstrate mastery on the following:
1. Determination of tax under the regular income tax option
z. Determination of tax under the 8% income tax option
3. Preparation of quarterly and consolidated or adjustment return
4. Rules relevant to taxable estates and trusts
s. Rules on installment payment of the regular tax
INDIVIDUAL INCOME TAXATION

The Regular Income Tax for Individuals

The income tax of individuals is d etermined through the following tax table:

Year 2018 to Year 2022

Taxable income - - I -- - Tax due
PZS0,000 and below None (0%) -~
Above PZS0,000 to P400,000 20% of excess above PZS_q,9.90 _ _
Above P400,q_00 to PB00,(2_0 0 P30,000 ±.__25% of excess over P400,000
-
Above PB00,000 to PZ,000,000 Pl 30,000 + 30%
--of excess
- over PB00,000
- -- -
Above P2,0_90,000 to PB,000,000 P490,000 + 32% of exceJ S over P2,000,000
Above
-- -PB,000,000
- -·- P_~,410,000 + 35f o of excess over P8,000,000
Year 2023 Onwards
~
- --- - - .
Taxable income Tax due
P2S0,0O0 and below None (0%)
Above P250,000 to P400,000 15% of excess above P2so· 000 · --- I
- - - I

Above P400,000 to PB00,000 P22,S00 + 2.Q% Qf exc_ess over P400,00O - -

Above PB00,000 to P2,000,000 P102,S002-_2~~0 of exce~ o;er PS00,000 . - ·
~ ve P2,000,0-00 t o PB,000,000 _ P4 0~,S00 ~ 30% of exces; ov~; P2,000.000
Above-PB,000,000 - PZ,Z0S,S00 + 35~/o ~f excess over PS,000,000

599
 Regular Income Taxation: Individuals
Chapter 14 -

Repeal of the personal exemption

The TRAIN law repealed th_e conce~t i!onal exemption in order to simplify
pde;~ied that individuals incur personal
the taX system. However,. it ca~;oorder to survive. Theoretically, the law must
expenses such as cost of hvi~g. d t t kill the goose that lays the golden
have to make provision for this m or er no o
egg.
. • 5 of individuals, the TRAIN law
In lieu of personal and cost of 1:~mg expen::·ption for every individual. This
provides for the P250,000 annua mcome e~ f cally granted for every
amount is inserted in the tax table and is _automa I arate accountin of
individual subject to regular income tax. There is no more sep g
personal exemptions.

TAXPAYERS SUBJECT TO PROGRESSIVE INCOME TAX . .

The progressive income tax for individuals covers the followmg.
1. Citizens
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:
1. Pure compensation income earner
2. Pure business or professional income earner
3. Mixed income earner

PURE COMPENSATION EARNER

The compensation income of 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 the 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

600
 er 14 - Regular Income Taxation: Individuals
chaPt
toyees with no other income
Er:e employee h~s no other taxa~le income, he may avail of the substituted filing
1
,stem. Under this system, the withholding tax on compensation is considered
:nough 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.
s. The employer files the annual information return (BIR Form No. 1604-CF).
6. The employer issues BIR Form No. 2316 to each employee.

Employees who do not meet the conditions of the substituted filing system shall
file the annual or final adjustment return not later than April 15 of the following
year and claim Form 2316 as tax credit.

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 during the year
3. lncurrence of error by the employer
An annual return needs to be filed to adjust the tax 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.
Illustration 1: Concurrent employment
Vic Luna is both employed in Yousee _Company and in Youbee Company. He has the
following income and .,.vithheld tax during the year:
Yousee Youbee
Taxable compensation income P 450,000 P 350,000
Withheld tax P 42.500 P 20.000
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 Cl wpt er 14 - Haoulor lnr o111e Tn)(iltlon: Individuals

Mr. listoq11l•'·" co11solldat1:d Income tax r;hall he computed as follows:

Tmmhlc c:0111pc11sntl1111 lncomc (/'1 50,000+/>.150,000) J!..,OO.O_J Q.0,0,
Income tax due, per lndlvlclual tax 1;1hlc r 130,000
l.c•sf,: Tax wll hh clcl hy c111pl oycrs (!'42,.'i00+/'20,000} _62.S0Q
l11cn111c lax payahlc or (n:f11 11dable) L,61,S_0Jl
llluslra tlon 2: Successive Em11/oymc11t
In 202 l, Emcral<J r·csl,:ncd from lllu c Moon Company and transferred employment to
Gagamha Company. The following were his income:
llJuc Moon Gagamba
Tnxable compensatio n incom e I' 300,000 P 400,000
Tax withh eld fro m compensation l 0,000 30,000

Zeus shall fil e a co nsolid ated return coveri ng his total 2020 income from both
employment and p;iy the residual ta x as fo llows:

Taxa hlc compensal Ion inco me (l'.100,000 + P400,000) P 700.00Q

Income tax du e, per incJ lvldual t :i x table P 105,000
Less: Tc1x withh eld hy both employers 10.000
Income ta x p:iyablc or (rcfu nd:i hlc) P 6 5._0J)J )

lllus tralfon 3: Em11lnyer error

In 2021 , Jeffs emp loyer wilhhcld a total of P 56,000 out of his P460,000 taxable
compcn.s:Hion income.

Since the t.,ix wit hhclrl is erroneous. Jeff shall fi le an annual adju stment return and pay
residu al tax due or claim refund or tax credit fo r excess withholding, as follows:

Taxable compensation income P 460.000

Income tax du e, per individual tax tabl e P 45,000
Less: Tax with held by employers ( 56.000)
fn come tax payable or (refundabl e) (P 11.000)

Jeff s hall use BIR Form 1700 as adjustment return.

Employees has other taxable income

Employees other incom e subject to regular tax may come from:
a. Casual sources
b. Engagement in busi ness or practice of a profession

602
 ,

ter 14 - Regular Income Taxation: Individuals

c11aP
employee has other taxable income, the employee is mandatorily required to
1f tI1en annua I income
. t ax re tu rn t o incorporate
. other income sources in his return.
Of~'\
1h15 I
referred as a consolidated income tax return
'

consolidated income tax return may either be:

Th~/R Form 1700 - if the employee is not engaged in business or profession
1
· BIR Form 1701 for mixed income earners - if the employee is also engaged in
2. business an d or pro,ess1
, ·on

'fhe withholding tax on co_mpensation (BIR Form 2316) given by the employer
shall be claimed as tax credit.

111ustration - With other casual income

Mr. Sung Ki is a sales executive. He received the following compensation and benefits
from his employer:

Gross compensation income P 987,000

Exempt benefits 84,000
fringe benefits (paid personal vacation) 81,000
Mandatory deduction for SSS, Ph ilHealth, HDMF 40,000
Total withholding tax deducted under Form 2316 145,750

He also derived the following other income:

Interest income from corporate bonds, net of 15% withholding tax P 76,500
Interest income from bank deposits, net of 20% final tax 16,000
Gain on sale of arts collection (held 3 years) 124,000
Total income P 216.500

Mr. Ki shall file BIR Form 1700 to include his other income subject to regular tax:
Interest income from bonds (P76,500 / 85%) P 90,000
Gain on sale of arts collection (P124,000 x 50% - long term) 62,000
Other income P 152,000
Note: The fringe benefits ofan executive - a managerial employee and the interest income fro m
deposits are subject to final tax. These are excluded in gross income subject to regular tax. The
associated final taxes are not-creditable.

The tax credits shall be:

Withholding tax on compensation (Form 2316) p 145,750
Withholding tax on the interest {P90K x 15% under Form 2307) 13,500

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 Chapter 14 - Regular Income Taxation: Individuals

Mr. Ki's taxable income shall be computed as:

Gross compensation income P 987,000
Less: Mandatory deductions p 40,000
Exempt benefits 84.000 124.000
Taxable compensation income P 863,000
Add: Other income subject to regular tax 152.000
Taxable income Pl.015.000
Mr. Ki's income tax still due shall be computed as:
Income tax due P 194,500
Less: Tax credit
Form 2316 P 145,750
Form 2307 13.500 159.250
Income tax still due p 35.250
The consolidation procedures of employees engaged in business or practice of a
profession will be discussed under mixed income earners.

PURE BUSINESS AND/OR PROFESSIONAL INCOME EARNER

Individual taxpayers engaged in business or practice of profession shall file
quarterly income tax returns (B IR Form 1701Q) and an annual tax return:
Quarterly Tax Returns Deadline
tst Quarter !TR - 17010 May 15 of the same calendar year
znd Quarter !TR - 17010 August 15 of the same calendar year
3rd Quarter ITR - 17010 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 deductions
2. Optional standard deduction
Illustration 1 - Itemized deduction
Mrs. Macipag, a self-employed taxpayer, had the following quarterly income details:
Ian. - March April - Iune July - Sept. Oct. - Dec.
Gross receipts P 500,000 P 520,000 P 550,000 P 580,000
Less: Cost of services 120,000 200,000 250,000 270,000
Gross income P 380,000 P 320,000 P 300,000 P 310,000
Less: Expenses
- Business expenses p 100,000 p 130,000 p 120,000 p 140,000
- Personal expenses 60,000 63,00 0 SB,ooo 85,QQQ
Total p 160,QQQ E 123,QQQ E lZB,QOO p 225,QOQ
Net income p 220,000 p 127.000 p 122.000 p 85,000
604

-
chapter 14- Regular Income Taxation: Individuals

Ian. - March April - lune Iuly -Sept. Oct. - Dec.

Withholding tax p 4•000 p lO,OOO P 15,000 P 14,000

Ifer quarterly
. . income and tax due sha11 be computed on her
and dannual taxable
cun,ulattve year-to- ate taxable mcome as follows:

1st Otr. 2nd Otr. 3rd Otr. Annual ITR

Gross receipts P 500,000 P 1,020,000 p 1,570,000 p 2,150,000
Less: Cost of sales l2Q ,0QQ 3Z0,QQ0 SZQ,Q00 f.HQ,Q0Q
Gross income P 380,000 P 700,000 p 1,000,000 p 1,310,000
Less: Deductions lQQ,0QQ 23Q,Q0Q 35Q,Q0Q 12Q,Q00
Taxable net income P 280.000 P 470.000 p 650.000 p 820.000

Income tax due p 6,000 P 47,500 p 92,500 p 136,000

Less: Tax credits
- CWT this quar ter p 4,000 P 10,000 p 15,000 p 14,000
- CWT prior quarters Q 4,Q00 14,QQQ 22,Q00
Total credits p 4,Q QQ p 14,00Q p 29,QQ0 p 43,QQ0
p 2,000 P 33,500 p 63,500 p 93,000
Less: Estimated tax paid '' ' ' ''
in prior quarters
lncome tax still due p
Q '. 2,QQQ
2,000 P 31.500 p
'• 33,S0Q
30.000
~

e
63 ,S00
29.500

Illustration 2 - Optional standard deduction

Let us assume the same data in the preceding problem, except that the taxpayer opted
to use the optional standard deduction.
The quarterly and annual taxable income and tax due shall be computed as follows:

1st Qtr. 2nd Qtr.

3rd Qtr. Annual lTR
P 500,000 P 1,020,000 p 1,570,000 p 2,150,000
Gross receipts
200,QQQ 4Q~.0QQ 628,QOQ 86Q,QQQ
Less: OSD - 40%
Taxable net income P 300.000 P 612,000 p 942.000 p 1,290.000

p 10,000 P 83,000 p 172,600 p 277,000

Income tax due
Less: Tax credits p 4,000 P 10,000 p 15,000 p 14,000
- CWT this quarter Q 4,QQQ 14,QQQ 29,QQQ
- CWT prior quarters p 4,Q00 P 14.Q0Q p 29,000 p 43,000
Total credits p 6,000 P 69,000 p 143,600 p 234,000
Less: Estimated tax paid
'' ' ' ''
in prior quarters p
0 '. 6,0QQ '
6.000 P 63.000 p
• 69.Q00 ~
74.600 p
143,(100
90,400
Income tax still due

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Chapter 14 - Regular Income Taxation: Individuals

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. The option must be indicated in the
annual adjustment return. 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 a 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.

Illustration
To facilitate our discussion, let us assume the same data in the previous illustration,
except that Mrs. Macipag is also employed with the following income during the year:

fmp}o'!!,meuc [an. - March April - lune lu.Lv- Sep_t Qcl - Dec.

Taxable compensation p 250,000 p 260,500 p 245,250 p 231,250
Withholding tax on compensation (Form 2316} 93,750
Business
Gross income p 380,000 p 320,000 p 300,000 p 310,000
Itemized deductions lQQ ,000 l3Q ,OQO 120,QQQ 11:Q,QQQ
Net income p 280,000 p 190.QQQ p 180,000 p 170.000
Form 2307s p 4,000 p 10,000 p 15,000 p 14,000

Quarterly tax
Mrs. Macipag shall report her quarterly income from business or profession and pay
the same quarterly income tax due as computed in the previous illustration:

Jan. - March April - June July - Sept. Annual ITR

Quarterly income tax due P 2,000 P 31.500 P 30,000 P ???

606
7

chapter 14 - Regular Income T"xation: Individuals

~ e of Mrs. Madpng for the ycnr shall he <:omputcd as:

raxable compensation income ·p 'lOLOJU!

Gross incom~ P 1,:-no,000
Less: Deductions _ __,1:~<JO~OJill
Net income P 02._Q._OJll).
Taxable income U.,007,000

Mrs. Macipag shall file BIR Form 1701 for her consolidated Income. Iler nnnirnl Income
tax still due shall be computed as:

Income tax due p 432,1.00

Less: Tax credit
WH tax on compensation (Form 2316) p 93,750
Expanded withholding tax (Form 2307s) 43,000
Estimated tax payments (Form 1701 Qs) G3,5QO ZOQ,ZSQ
Income tax still due p 231.~

THE 8% INCOM E TAX OPTI ON

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 t he first quarter percentage tax return. When
made, the option shall be irrevocable for the calendar year.

Nature:
l. A bundled tax - it is in lieu of:
a. Regular income tax, determined thr ough the income tax table
b. 3% general percentage tax (now temporarily 1 % during this pand~mic)

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

3. Paid quarterly and annually

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

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Chapter 14 - Regular Income Taxation: Individuals

Business Tax: A Basic Overview

Aside from income tax, individuals engaged in business or cxel'cisc of a profession
al'e also required to pay a business tax which is either a 3<Yo percentage tax or a
12% value added tax (VAT).

Types of business taxpayers:

t. Exempt businesses - not subject to VAT or percentage tax
Examples:
a. Businesses selling agricultural products in original state
b. Agricultural contract growers
c. Book publishers or bookstores
2. Business specifically subject to othel" percentage taxes - not subject to VAT
but subject to percentage tax of various rates
Examples:
a. Common carriers by land, such as taxi, jeepney, bus and car for hire
b. Operators of cockpits, cabarets, clubs, jai-alai or horse race track
3. Vatable businesses- other businesses
Vatable businesses either pay:
a. 12% value added tax - if their annual sales exceed P3,000,000 or when
they registered as VAT taxpayers
b. 3% general percentage tax - if their annual sales do not exceed the
P3,000,000 and did not opt to volunta1y register as VAT taxpayers
Business taxation is an advanced tax topic which will be discussed under Business
& Transfer Taxation by the same author.

Normally, busin esses or professional practitioners start small as non-VAT

taxpayers. As their business or practice gains traction and reach the P3M VAT
threshold, they are mandatorily requi red to register as VAT taxpayers.

Covered businesses:
Only vatable busi nesses 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. Individuals receiving income not subject to business tax, such as:
a. Partners receiving share in net income of a general professional partnership
608
Chapter 14 - Regular Income Taxation: Individuals

b. co-owners receiving share of income in co-owned p r

. . h
rt·
op e 1es
c. venturers receiving. . s a fre in net income of an exempt 1-01·n t ven tu re
d. Heirtssor b enefi crnnes O trust receiving income distribution from estates or
trus

raxobligations of individual non•VAT taxpayers:

,.-
Re1rular tax ootion 8% Income tax option
Regular income tax 3 quarterly 1701 Qs and 1 3 quarterly 1701Qs and 1
annual 1701 annual 1701A
percentage tax 4 quarterlv 15510 None
-
VAT-registered taxpayers pay VAT and r egular 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 incom e
subject to regular tax a re added to the basis.

Pure business or professional income earn e r

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

Illustration
Assume a taxpayer who is purely engaged in business had sales of P2,000,000,
Pl00,000 other income subject to regular tax and expenses of P 840,000.

The 8% income tax would be computed as:

Gross sales or gross receipts P 2,000,000

Add: Other taxable income subject to regular tax 100,000
P 2,100,000
Total
Less: Annual exempt income ( 250.000}
P 1,850,000
Net total
Multiply by: Optional income tax rate 8%
8% income tax P 148,000

Mixed income earner_ . . . .

Compensation income 1s not subJect to business tax. Hence, 1t 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
609
 Chapter 14- Regular Income Taxation: Individuals

the business or profession shall be separately computed. For this purpose, the
classification rule as discussed in prior chapters must be observed.

Since the use of the income tax table in computing the tax due from compensation
effectively allowed the taxpayer claim of P250,000 annual income exemption as
embedded in the tax table, there will be no more P250,000 deduction allowable
against the basis of the 8% income tax. Furthermore, if the amount of
compensation income does not exceed P250,000, the unutilized deduction cannot
be deducted against business ·income since the TRAIN law did not contemplate a
deduction cross-over.

Illustration 1
A mixed income earner realized P920,000 from compensation, P2,000,000 in sales,
Pl00,000 other income subject to regular tax and incurred P480,000 in expenses.

The income tax due under the 8% income tax option shall be computed as:
IDcQme Tax gue
Taxable compensation income p 920,000
Less: Lower tax bracket in tax table 800,QQQ p 130,000
Residual income p 120,000
Multiply by: Incremental tax rate 3QO/Q 36,QOQ
Income tax due on compensation income p 166,000

Gross sales or gross receipts p 2,000,000

Add; Other income subject to regular tax 100,000
Total p 2,100,000
Multiply by: Optional income tax rate 80/Q 168,000
Income tax due p 331,QQQ

IIJustration 2
A mixed income earner realized PZ,000,000 in sales, Pl00,000 in other income subject
to regular tax and earned PlS0,000 compensation from part-time employment.

Income Tax due

Taxable net income P 150,000
Less: Lower tax bracket in tax table 250,000 P o
Excess (- 100,000)
Income tax due from compensation p 0
Gross sales or gross receipts P 2,000,000
Add: Other income subject to regular tax 100,000
Total P, 2,100,000
Multiply by: Optional income tax rate 8% 168,Q00
Income tax due p 168,0Q0

. , 610
 chapter 14 - Regular Income Taxation: Individuals

Note: The P100,000 excess of P250,000 over the com . .

,1<"Jinst the basis of the 8%. No deduction cross O"
. lpl ensat,on income cannot be deducted
• t- • .. er 1s a owed.

INTEGRATED ILLUSTRATION
Integrated Illustration 1 - Pure business or ro"' . .
Mr. Cardenas, a proprietor of a furni P 1ess,ona/ mcome earner
statement in 2021 : ture shop, recorded the following income

Net sales of finished goods, net of p 18,000 CWTs

P 2,382,000
Sales of scraps and trimmings
Total Sales/Revenues/Receipts/Fees
200,000
P 2,582,000
Less: Cost of sales or services
1,200.000
Gross Income from Business/Profession P 1,382,000
Add: Other income
Dividend income p 12,000
Gain from sale of stocks, net of capital gains tax 68,000
Interest income from deposits 16,000
Gain on sale of machinery held for 6 years 40,000
Gain on sale of bonds held for 2 years 20,000
Interest income from bonds 14,000 170,000
Total Income P 1,552,000
Less: Administrative and selling expenses 600,000
Net income P 952,000

Regular Tax Option

The 2021 taxable net income of Mr. Cardenas shall be computed as follows:
Net Sales/Revenues/Receipts/Fees (P2,382,000 + PlB,000) P 2,400,000
Add: Other taxable income from operations· Scrap sales 200,000
Total Sales/Revenues/Receipts/Fees P 2,600,000
Less: Cost of sales or services 1,200,000
Gross Income from Business/Profession P 1,400,000
Add: Non-operating income subject to regular tax
Gain on sale of machinery P 40,000
Gain on sale of bonds (P20K x 50% · long-term) 10,000
Interest income from bonds 14,000 64,000
Total Gross Income P 1,464,000
Less: Allowable deductions (Business expenses) 600,000
Taxable net income P 864,000

Under the regular tax option, he would pay the following for 2021:

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 Chapter 14 - Regular Income Taxation: Individuals

a. Regular income tax:

Taxable net income p 864,000
Less: Lower limit of the income bracket
where the taxable income qualifies 800,000 p 130,000
Excess . p 64,000
Multiply by: bracket marginal rate 30% 12.200
Income tax due p ]49,200
b. 3% business tax:
Net Sales/Revenues/Receipts/Fees P 2,600,000
Multiply by: Percentage tax rate 3%
Total percentage tax due P 78,000
Total taxes under the regular tax option P 227.200
The regular income tax would be paid in three quarterly tax filing (1701 Q) and an
annual income tax return (1701). The 3% percentage tax will be paid in four
quarterly percentage tax returns (2551Q).

The 8% Income Tax Option

Under the 8% income tax option, he would pay the following:
Total Sales/Revenues/Receipts/Fees P 2,600,000
Add: Non-operating income subject to regular tax
Gain on sale of machinery P 40,000
Gain on sale of bonds {P20K x 50% · long-term) 10,000
Interest income from bonds 14,000 64,000
Total Gross Income P 2,664,000
Less: Individual income exemption on income tax 250,000
Total P 2,414,000
Multiply by: Optional income tax rate 8%
Income tax due P l 93,120
While it appears that the 8% option is the better option in the illustration, it is not
always the case. At the start of the year wherein the option is made, you could not tell
for sure which option would yield the lesser tax, except only if you have accurate
information systems that enables accurate forecasting of future performance.

Integrated Illustration 2 - Mixed income earner

To facilitate our illustration, we shall assume the same data in the previous illustration
except Mr. Cardenas also earned Pl,200,000 in compensation income in 2021 .

Regular Tax Option

Under the regular tax option, he would pay the following for 2021:

612
 n·.apt~r 1-4 - Regular Income Taxation: Individuals
. Regular income tax:
..
1
Taxable compensation income p 1,200,000
1a'\11ble net income
Taxable income 864,Q QQ
p 2,064,000
Less: Lower limit of the income bracket
where the taxable income qualifies p
2,QQQ,QQQ 490,000
Ex~ess p 64,000
Multiply by: bracket marginal rate
Tot:31 income tax due 32°ai 2Q,1QQ
p 5-10,/tB.Q
b. 3% business tax:
Net Sales/ Revenues/Receipts/Fees P 2,600,000
Multiply by: Percentage tax rate
3%
Total percentage tax due p 78,0Jli!
Total ta\'. paid under the regular option L__5Jlfi.1.8Jl
The 8% Income Tax Option
Under the 8% income tax option, he would pay the following:
a. Regular income tax:
Ta\'.able compensation income P 1,200,000
Less: Lower limit of the income bracket
where the taxable income qualifies 800,000 p 130,000
Excess P 400,000
Multiply by: bracket marginal rate 3Q% 120,000
Total income tax due on compensation income p 250,000

b. 3% business tax:
Net Sales/Revenues/Receipts/Fees P 2,600,000
Add: Other income subject to regular tax
Gajn on sale of machinery P 40,000
Gain on sale of bonds ,10,000
Interest income from bonds 14,000
Total P 2,664,000
Multiply by: Percentage tax rate 8% 213,120

Total tax paid under the regular option p 463.120

INTERIM TRANSITION TO THE VALUE ADDED TAX

Individuals exceeding the P3M VAT threshold during the year are mandatorily
required to change registration from non-VAT to a VAT taxpayer before the end of
the month following the month the taxpayer exceeded the P3,000,000 threshold.
613

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 - j

Chapter 14 - Regular Income Taxation: Individuals

The taxpayer shall pay regular income tax for his income during the entire year
and pay VAT pr ospectively starting the month he became a VAT taxpayer. The 8%
income tax payments shall be considered as tax credit against the regular income ,
tax due. The taxpayer shall be required to pay the 3% percentage tax for,sales or
receipts generated before becoming a VAT taxpayer. '

IIJustration
Mr. Chinito, a pure business income earner, opted to the 8% income tax in the first
quarter of2020. Jn June of 2020, he exceeded the P3M VAT threshold.
[an. - March Au.ril - Lune lulr. - Seat
Sales p 1,200,000 p 2,000,000 p 1,000,000
Cost of sales 6QQ,QQ0 l,Q0Q,000 S0Q,00Q
Gross profit p 600,000 p 1,000,000 p 500,000
Gain on sale of domestic stocks 20,000 30,000
Gain on sale of used equipment 40 000
Tot.al income p 620,000 p 1,040,000 p 530,000
Less: Expenses 320,QQQ 450,0QQ 300,QQ0
Net income p 300,QQQ p 590,illlQ e
230,QQQ

1st Quarter ljanuary to March)

Mr. Chinito's first quarter total tax due under the 8% income tax shall be:

Sales P 1,200,000
Less: 250,000
Total P 950,000
Multiply by: Optional income tax rate 8%
Total income tax due P 76,QOQ

2nd Quarter {April to June)

Mr. Chinito exceeded the P3M VAT threshold. He shall be subject to regular tax and
required to pay percentage tax on sales or receipts made since January 1.

The percentage tax due shall be:

Total sales from January to June P 3,200,000

Multiply by: Percentage tax rate 3%
Total percentage tax due P 96,0QO

The taxable income of Mr. Chinito in the second quarter shall be computed as follows:
• <

Sales P 3,200,000
Less: Cost of sales 1,600.000
Gross income from operations P 1,600,000

614
 r 14 - Regular Income Taxation: Individuals
(haP te

G:oss income fro~ operations P 1,600,000

other income subJect to regular tax 40.000
Toial income subject to regular tax r l.640,ooo
Les>:
neductions (business expenses) p 770,000
~rccntage tax expense 96,QQQ f366,QQQ
Taxable income ~
E=~7="'7-1.0.0.0
=
The zus quarter income tax due of Mr. Chinito shall be computed as:

lncQme Iax du~

Taxable income p 774,000
Less: Lower tax bracket ~QQ,QQQ p 30,000
Excess p 374,000
Multiply by: Incremental tax rate 250/Q 93,SQQ
Total tax due p 123,500
Less: Tax due in 1st Quarter 26,QQQ
Income tax still due p 17,SJlQ
Mr. Chinito shall separately pay the P96,000 percentage tax which shall be assessed
upon VAT registration with the P47,S00 income tax. Mr. Chinito shall pay the VAT
effective July 2020. The VAT system will be discussed extensively under Business &
Transfer Taxation.
3rd Quarter ljuly to September)
p 4,200,000
Sales
Less: Cost of sales 2.100.000
Gross income from operations p 2,100,000
Other income subject to regular tax 40.000
Total income subject to regular tax p 2,140,000
Less:
Deductions (business expenses) P 1,070,000
Percentage tax expense 96,000 1.166,000
Taxable income p 971.0..0.._Q
The 3rd quarter income tax due of Mr. Chinito shall be computed as:
hl!:QDH: Jm~ dm:
p 974,000
Taxable income
Less: Lower tax bracket llQQ,Q0Q p 130.000
p 174,000
Excess
Multiply by: Incremental tax r.itc 3Q1Z!I SZ.ZQO
p 182,200
Total tax due
Less: Tax due in 2 nd Quarter 123.SQQ
Income tax still due £ ~ll,lQQ
615
 ChApter 1d - Requln, Income T.t~,nion 1nd1v1d11t'lls

Mr. Chinito s h,lll sep;u.itcly pny thl' qu.irt<•rly VAT a~ldc from the r s0.700 Income t-1 x.
Th e same prnccss will lw followL'd until thr :rnnu.il inc-<in1c t,,x rP.turn.

TAXABLE ESTATES AND TRUSTS

Taxable Est,tcs
An estiltc is nn lncomt• ta~p.\yc, ,r und er /mltcw/ , ,•rt /, m,•nt nr admlnft trtWon. An
est,1tc under cxtr.i -j11d1rbl set t l1·11w111 i~ not .'.I 1.1xp.1yc1 . 1 hC' incomr. or thr> cst.tt e
under cxtrn -J11clic.:i,1I scttl 1•111cnt b t.1x.1hlt· to tlw lw,rc,.

Taxable Tn1s ts
A rcvocnhl c trus t is n ot ;i l:lx p:iy1·r nn<I b trcJt('d ;i~ a pa -,~• lhro llJ!h t'nl1ty who'-r
income is tax;ihlc to th e gr;lllt or- Ir11 stnr.
An in·cvoc;iblc trus t is :1 sc par:1tc :rnd di s tinct tax.ihl c en t,t)' (/JIil Rulm,q 003-05.
/11(\' 22. 2005). A taxahl c tru s t is trea ted as an incJivicJual taxpayer and i~ Jll owcd
P20,000 personal exempt ion.

Income taxable to an estate or trust under the NIRC

1. Income accumul,Hcd in trus t for the ben efit of unbo rn or unac;ccn;iincd
person or persons with con tingent interests :111d income accumulated o r ht-ld
fo r future distributi on under the terms of th e w rll or t nrc;t
2. Income which is to be clislribulecl cu rren tly by lhc fiduciary to the
beneficiaries and income collected hy a gu;i rdian o f nn infant ,•:hich ,s to be
held or distributed as the cou rt m;iy direct
3. Income received by estates of deceased pcrsonc; dunn~ the pcnod of
administration or settlem ent of the c~t ;-r tc
4. In come which, in th e discretion of th e fidu c1,1ry. rn.1y he- c-, thcr d,s tnbutcd to
the beneficiaries o r accumulated

Taxable income of the d eccn!-iecl taxp aye rs

In th e case of the death of a taxp;1ycr, there sh,1II IH' rn cltHkd 111 rornp11t111c t,l\Jhle
income for the taxable period in which f:1lls the d,lll' 01 111 , de.1th. ,1mour1ts .1ccn1c-d
up to the date of his de;ith if 1101 otherwbc propl•rly mclucl1hh• 111 rl':-pcct of such
period or a prior period. (Sec. 11, NIUC)

Illus tration l : Oc ccascd taxpayer

Miss X died on July 1 S, 20:.-! 1. Ilcr cstilll' 1111cl1• rwl' llt 111d1n.1l q•tth•m1'11t Sin' h.,d thr
following income ln 2021:
Compensation Income I' :i:rn.ooo
Rental Income _ _tJC,U.UOO
Total P 1,:.'.UO,llUO
The decedent leases ;i property which earn,; l'110,000 1110111 hlv rc11t.1I.
616
 4- Regular Income Taxation: Individuals
•:h3pter 1
counting period of the decedent shall be terminated at the date of death. Since
ne :rate is under judicial administration, the estate of the decedent shall be
tr.<. tered as an •m d.1V1.du al taxq,ayer.
~;;, the following income shall be reported to the income tax return of the:
Estate Q,(the
Decedent decedent
com~ensation income P 320,000
Renta income (6.5 months x P 80,000) 520,000
Renta'. income (5.5 months x P 80,000) P 440,000
ra.,iib:e income P 840,000 P 440,000
Note:
1. Jancary 1 to July 15, 2021 is 6.5 months while July 16 to December 31 is 5.5 months.
2. Cut-off of income at the date of death is necessary not only for proper accounting of income
taXes but also for estate taxes. In estate taxation, income accruing before death are part of
gross estate while those accruing after that are excluded.
Jf the estate of the decedent is administered extra-judicially, her heirs will report their
share in the P440,000 net rentals in their individual tax returns.

Illustration 2: Estate
The estate of Mr. Barbel has PSS0,000 gross income before business expenses of
P200,000. The estate administrator distributed P300,000 to the heirs in accordance
with the will of Mr. Barbel.

The taxable income of the estate will be computed as follows:

Gross income P 850,000
Less:
Regular allowable deductions P200,000
Special allowable deduction
Income distribution to heirs 300,000 500,000
Taxable net income P 350,000
Note: It must be recalled that income distribution from the estate is a special deduction against
the gross income of the estate. The heirs shall include the P300,000 income distribution in their
taxable income.

Illustration 3: Trust
Mr. Batman designated in irrevocable trust a property in favor of Robin and appointed
Superman as trustee. The property earned P720,000 income before expenses of
P200,000 and trust fees of P?0,000. In accordance with the trust indenture, Superman
distributed Pl00,000 to Robm.

The taXable income of the trust shall be computed as follows:

617

-
~ ✓
..!. ,.. f ' '• --··- .........,..._ _ _
Chapter 14 - Regular Income Taxation: Individuals

Gross income P 720,000

Less: Regular allowable deductions P250,000
Special allowable deduction
Income distribution to beneficiaries 100,000 350,000
Taxable net income P 370.000

Note: Robin will report the Pl00,000 income distribution in his taXable income. Superman Will
report the PS0,000 trust fees in his gross income.

Consolidation of two or more trusts

Multiple irrevocable trusts designated by the same grantor for the benefit of the
same beneficiary shall be consolidated for purposes of income tax.
The consolidation of irrevocable trusts is necessary to eliminate tax savings which
the grantor may derive by deliberately splitting the corpus of the trusts into
several trusts.
Illustration 1
Don Ambrocio designated three trusts all in favor of his daughter, Cindy:
Operating Distribution
Irnst OesieaatiQD Ir:uste~ im:Qme tQ Cind~
Trust 1 Irrevocable AJ p 400,000 p 40,000
Trust 2 Irrevocable BJ 600,000 60,000
Trust 3 Revocable CJ 400,000 80,000

The trustees of Trust 1 and Trust 2 shall prepare tax returns covering the income of
the property held under their control as follows:

Irust l Tn1st 2
Operating income p 400,000 p 600,000
Less: Special Itemized deduction
Income distribution to beneficiary 40,QQ0 60,0QQ
Taxable income p 360.0QQ p 540.000
Income tax due per tax table p 22.000 e 65.000
For purposes of income taxation, the income of Trust 1 and Trust 2 will be
consolidated as follows:
Consolidated
Trust 1 Trust 2 Irust
Taxable net income p 36 0,0Q0 p 540.0QQ p 200,000
Income tax due p 160,000
Allocated tax due p 64,000 p 96,000
Less: Income tax paid 22,00Q 65,000 87,0Q0
Income tax still due p 42,Q00 p 31.000 p 73.000
618
 er 14 - Regular Income Taxation: Individuals
chaP t
he consolidated tax due is allocated to Trust 1 and Trust 2 as follows·
1 Trust 1 = P360,0 00/P900,000 x P160,000 = P64,000 .
Trust 2 = PS40,000/P900,000 x P160,000 = P96,000

'frUSt 3 is not taxable .as it is r evocable. The entire P400,000 income of Trust 3
including the PBO,OOO. income distribution to Cindy will be included in the taxable
income of Don Ambroc10.

1uustration 2: Trusts with retention of certain rights

Mr. Masagana designated two trusts as follows:
- Trust Beneficiary Desi.Qnation
Irr evocable as to corpus and income, however,
Trust Cassandra Mr. Masagana reserves the power to revest to
1 (daughter) h imself 1/4 of the corpus upon the happening of
some specified contingencies.
Irrevocable as to corpus and income except that
Trust Alexander P30,000 of the annual income will be used to pay
2 [son) the life insurance premium of Mr. Masagana.
Trust 1 and Trust 2 earned P200,000 and P300,000 during the year. Both trusts made
distributions to their respective beneficiaries amounting to PS 0,000 and Pl00,000,
respectively.

The two trusts will not be consolidated becau se they involve separate beneficiaries.
However, the grantor shall include in his taxable income any income pertaining to that
part of the corpus over which the grantor has reserved power to revoke. Any income
of trusts reserved for the benefit of the grantor shall likewise be included in the
taxable income of the grantor.
The taxable income of Trust 1 and Trust 2 shall be computed as follows:
Iru~t 1 Trl:!~t 2 ·
Operating income p 200,000 p 300,000
Less: Special r egula r itemized deductions
Income pertaining to grantor *50,000 30,000
Distribution to beneficiaries SQ,QQQ lQQ ,QQQ
Taxable net income p l QQ,OOQ E 170,QQQ
Note:
l. The grantor has reserved power to revoke one quarter of the corpus in Trust 1.
2. The PS0,000 income pertaining to such part, computed as (P200,000 x ¼), shall be taxable
upon the grantor. .
3. The P30,000 income which sbh all be reserved for the payment of the life insurance of the
grantor shall be likewise taxa 1e to the grantor.

619
Chapter 14 - Regular Income Taxation: Individuals

Employee trust funds .

An employees' trust which forms part of a pension, stock bonus, or profit sharing
plan of an employer for the benefit of some or all of his employees is exempt from
income taxes imposed under the NIRC. (Sec. 60(B), NIRC) It must be emphasized
that this exemption covers final tax, capital gains tax, and r egular income tax.

Requisite of Exemption of Employee's trust

1. Contributions are made to the trust by the employer, employees, or both for
the purpose of distributing to such employees the earnings and principal of
the fund accumulated by the trust in accordance with such plan.
2. Under the trust instrument, it is impossible at any time prior to the
satisfaction of all liabilities with respect to employees under the trust, for any
part of the corpus or income to be (with in the taxable year or thereafter) used
for or diverted to purposes other than for the exclusive benefit of his
employees.
3. Any amount actually distributed to any employee or distributee shall be
taxable to him in the year in which so distributed to the extent that it exceeds
the amount contributed by such employee or distributee. ·

Return of Married Taxpayers

Married individuals shall file a return for the taxable year to include the income of
both spouses, computing separately their individual income tax based on their
respective total taxable income. Where it is impracticable for the spouses to file
one return, each spouse may file a separate return of income. If any income cannot
be definitely attributed to or identified as income exclusively earned or realized
by either of the spouses, the same shall be divided equally between the spouses
for the purpose of determining their respective taxable incomes.
Illustration
Mr. and Mrs. Cruz have a house which they rent to tenants earning them Pl,400,000 a
year. Mr. Cruz is an accountant while Mrs. Cruz is an employed nurse. Mr. Cruz earned
P 2,800,000 before P900,000 direct costs and P600,000 expenses. Mrs. Cruz also
earned Pl,200,000 compensation. Mr. and Mrs. Cruz compiled the following:
Mr. Cruz Mrs. Cruz
Form 2307s P 140,000
Payments under 1701Qs 340,000
Form 2316s P 250,000
Total P 480.000 .P....2.50.000
The income tax and still due from the spouses shall be reported as follows:

620
 .,

chapter 14- Regular Income Taxation: Individuals

Mt, Crnz Mrs, Crnz

N t Sales/Revenues/ Receipts/Fees p 2,800,000
A~d: Other taxable income from operation 0
'f tal sales/ revenues/receipts/fees p 2,800,000 I,

L:ss: cost of sales or services 2QQ,QQQ

Gross Income from business/profession p 2,700,000 p 0
Add: Non-operating income (rental income) 7QQ,QQQ Z0Q,QQQ
Total Gross income p 3,400,000 p 700,000
Mr, Crnz Mrs. Crni
Total Gross income p 3,400,000 p 700,000
Less: Allowable deductions 6Q0,00Q
Net income p 2,800,000 p 700,000
compensation income p 0 p 1,20Q,QQQ
Taxable income p 2.800.000 p 1.900.00Q

Income tax due p 746,000 p 460,000

Less: Tax credit 480,0QQ 25Q,QQQ
Tax still due p 266,QQQ p 110,QQQ
Aggregate amount payable p 376.00Q

Income of unmarried minors from property received from parents

The income of unmarried mi nors derived from property received from a living
parent shall be included in the return of the parent except when:
1. The donor's tax has been paid on such property.
2. The transfer of such property is exempt from donor's tax.
INDIVIDUALS WITH PERSONAL EQUITY RETIREMENT ACCOUNTS (PERA)
lt must be recalled from Chapter 8 that individuals which contributes to a PERA
account is exem pt from income tax on said contribution and are entitled to a tax
credit equivalent to 5% of said contributions.
Illustration
Mr. and Mrs. Black have four qualified dependents. The spouses had the following data
during 2021:
Mr. Black Mrs. Black
Gross compensation, net SSS, Phil Health & HDM F P 500,000 P 420,000
Withholding tax on compensation income 23,000 13,000
Contributions to PERA account 120,000 80,000
Payments for health insurance 5,000 3,000

The taxable income and tax due of Mr. and Mrs. Black shall be computed as follows:

621
 - ---
Chapter 14- Regular Income Taxation: Individuals

Mr. Black Mrs. Black -

Gross compensation, net mandatory deductions p 500,000 p 420,000
Less: Exempt Qualified PERA contribution l()Q.QQQ 8Q.QQQ .
Taxable compensation income p 4QQ,OOQ L 3;lQ.OQ,Q
Income tax due, per tax table p 30,000 p 18,000
Less: Tax credits
C\i'tl' on compensation p 23,000 13,000
5% on Qualified PERA contribution S.QQO 1,QQ~)
Tota\ tax credits p 2a.m10 p lZ,QQQ
Tax still due and payable p 2,QOQ p 1.000
Note:
1. Only up to the Pl00,000 maximum allowable contributions per year could qualify :is PERA
contributions. The limit is applied on the basis of per individual contributor.
2. The 5% tax credit must be supported by certificate from the PERA account administrator.

Return of Persons under Disability

lf the taxpayer is unable to make his own return, the return may be made by his
duly authorized agent or representative or by the guardian or other person
charged with the care of his person or property. The p rincipal and his
representative or guardian assuming the responsibility of making the return shall
be responsible for penalties provided for erroneous, false, or fraudulent returns.

Signature in the return is presun1ed 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.

ATTACHMENT TO THE ANNUAL IN COME TAX RETURN

For taxpayers claiming the itemized deduction, taxpayers shall fill-up an
attachment form. The attachment form shows the composition of the itemized
deductions in the annual income tax returns plus required disclosures by law or
regulations. This is mandatory and shall be filed together with the income tax
return. The required attachments were discussed in Chapter 7.

WH EN AND WHERE TO FILE AND PAY TAX

1. For Electronic Filing and Payment System ( eFPS) taxpayers
The return shall bee-filed and the tax e-paid on or before th e 15th day of April
of each year covering the income for the preceding year using the eFPS
fac ilities through the BI R website.
2. For Non-Electronic Filing and Payment System (non-eFPS) taxpayers
The return shall be filed and the tax paid on or before the 15th day of April of
each year coveri ng t he income for the preceding year with:
622
o,apter 14 - Regular Income Taxation: Individuals

a Any authorized agent banks (AAB) l d . .

· Revenue District Officer (RDO) h ochate W 1th m the jurisdiction of the
w e re t e taxpayer is register d
b. Revenue Collection Officer (RCO) under th . . d' e
the taxpayer is registered, if there is no AA: Juns iction of the RDO where
In case of "n~ payr:ient returns," t~e same shall be filed with the RDO where
th~ ?3x~ayer 15 r~gi stered or has his legal residence or place of business in the
Ph1hppmes or with the concerned RCO under the same RDO.
A .HNo pay"!ent return" pertain.s to tax returns without tax payahlc such as those
with n~gat1ve or ze:o taxable mcome, those with exempt or no operation during
the period, those with tax creditable or refundable, or those with balance payable
only on the second installment

3, For non-resident 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 return 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 becomes due and payable together with the delinquency
penalties.

Illustration 1
An ind ividual taxpayer availing of the installment payment of his income tax had a tax
due of Pl 0,000 in 2021. He made qua rterly estimated tax payments of P2,400 and was
withheld with P2,000 in creditable withholding taxes.

The first installment which shall be due upon flli ng of the a nnual income tax return on
or before April 15, 2022 shall be:
Tax due on first installment (Pl0,000/2) p 5,000
Less:
Creditable withholding taxes P 2,000
Quarterly estimated tax payments 2,400 4,400
Tax payable p 600.

623
 -
Chapter 14- Regular Income Taxation: Individuals

The second install ment which shall be due on or before October 15, 2022 shall be:
Tax due on first installment (Pl0,000/2) P 5.000

JJJustration 2
An individual taxpayer availing of the installment payment of his 2022 income tax had
a tax due of P7,000 and was subjected to creditable withholding tax of P4,000. ·
The first installment is nil. The taxpayer shall file a return, but with no payment.
Tax due on first installment (P7,000/2) P 3,500
Less: Creditable \vi th holding tax 4,000
Ta.x payable (P SQQ)

The second installment due on or before October 15, 2022 shall be:

Tax due on first installment (P7,000/2) P 3,500

Less: Excess withholding tax in first installment ( 500)
Tax payable P 3.000

Illustration 3 - Late payment

Assume the same facts in the preceding illustration, except that the second installment
was paid on November 15, 2022.

The delay in payment shall result in the imposition of the penalties discussed in
Chapter 4. The taxpayer shall pay the following before compromise penalties:

Tax still due p 3,000

Add: Surcharge (25% x P3,000) 750
Interest (12% x 31/365 x P3,000) 31
Total amount due p 3,2810

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.

624

- - -- - ---- -
 er 14 - Regular Income Taxation: Individuals
chaPt
wao ARE NOT REQUIRED TO FILE INCOME TAX RETURN?
Minimum wage earners
~: An individual whose gross income does not exceed P250,000
_ An individual whose compensation income derived from one employer does
3
not exceed P60,000 and the income tax on which has been correctly withheld
4. Individuals whose income has been subjected to final withholding tax such 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 amounts indicated by the taxpayer in the income tax return are his assertions.
The same are deemed final unless amended by the taxpayer. Within th ree years
from the required date of fil ing of the return, the taxpayer can amend the same so
Jong as no Letter of Authority for investigation is issued by the BIR for the
examination of his tax return.

Amended returns shall not be subject to surcharges for late filing or late payment
but shall be imposed the interest penalties.

625