TRAIN Exemption and Exclusions from Gross Income

By: Pamela Ruth G. Calog, CPA

2 months ago

In the case of PLDT vs. City of Davao G.R. No. 143867, Exemption is an immunity or privilege. It is freedom from a charge or burden to which others are subjected. Consequently, the rule that tax exemption should be applied in strictissimi juris against the taxpayer and liberally in favor of the government applies equally to tax exclusions.

Exclusion, on the other hand, is the removal of otherwise taxable items from the reach of taxation, e.g., exclusions from gross income and allowable deductions. Exclusion is thus also an immunity or privilege which frees a taxpayer from a charge to which others are subjected. 

Who are exempt from Income Tax?

  1. Income from abroad of a non-resident citizen who is:

  1. A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein;

  2. A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis;

  3. A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year; or

  4. A citizen who has been previously considered as a non-resident citizen and who arrives in the Philippines at any time during the year to reside permanently in the Philippines will likewise be treated as a non-resident citizen during the taxable year in which he arrives in the Philippines, with respect to his income derived from sources abroad until the date of his arrival in the Philippines.

  1. Overseas Filipino Worker, including overseas seaman

An individual citizen of the Philippines who is working and deriving income from abroad as an overseas Filipino worker is taxable only on income from sources within the Philippines; provided, that a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade will be treated as an overseas Filipino worker.

A Filipino employed as Philippine Embassy/Consulate service personnel of the Philippine Embassy/consulate is not treated as a non-resident citizen; hence, his income is taxable.

  1. General Professional Partnership (GPP)

  1. Government Service Insurance System (GSIS)

  1. Social Security System (SSS)

  1. Philippine Health Insurance Corporation (PHIC)

  1. Local Water Districts (LWD)

What are some of the exclusions from gross income?

  1. Life insurance

  2. Amount received by insured as return of premium

  3. Gifts, bequests and devises

  4. Compensation for injuries or sickness

  5. Income exempt under treaty

  6. Retirement benefits, pensions, gratuities, etc.

  7. Miscellaneous items

  8. Income derived by foreign government

  9. Income derived by the government or its political subdivision

  10. Prizes and awards in sport competition

  11. Prizes and awards which met the conditions set in the Tax Code

  12. 13th month pay and other benefits not exceeding P90,000

  13. GSIS, SSS, Medicare and other contributions

  14. Gains from the sale of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years

  15. Gains from redemption of shares in mutual fund

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Frequently Asked Questions

  • Taxable Income means the pertinent items of gross income specified in the Tax Code as amended, less the deductions, if any, authorized for such types of income, by the Tax Code or other special laws.

  • Tax deductions are the amounts which the law allows to be subtracted from gross income in order to arrive at net income.

  • Allowable deductions from gross income can be subtracted either as Optional Standard Deduction (OSD) or Itemized Deductions.

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