GROSS INCOME

INCLUSION

- Gross income means all income derived from whatever source, including (but not limited to) the
following items:

(1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages,
commissions, and similar items;

(2) Gross income derived from the conduct of trade or business or the exercise of a profession;

(3) Gains derived from dealings in property;

(4) Interests;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Annuities;

(9) Prizes and winnings;

(10) Pensions; and

(11) Partner's distributive share from the net income of the general professional partnership.

Note: Gross Income means total income of a taxpayer subject to tax. It means, in its broad sense, all
income from whatever source, derived by RC (within or without), NRC (within), RA (within), NRAETB
(within), whether legal or illegal.

Classifications of Income

1.Compensation Income Earned from employer-employee Normal tax eg. salaries and
relationship commissions

2.Profession or Business Income The value derived from the exercise Normal tax eg. Net income
of profession, business or from bus. and
utilization of capital including profit gain from the
or gain derived from sale or sale of asset
conversion of asset
3.Passive Income An income in which the taxpayer Final Tax eg. Royalty,
merely waits for the amount to interest, prizes
come. and winnings
4.Capital Gain An income derived from sale of Final Tax / eg. Sale of
assets not used in trade or Normal Tax family home,
business. sale of shares
of stocks and
sales of other
capital asset

GROSS COMPENSATION INCOME

Classification of Gross Compensation Income

1. Basic salary or wage

2. Honoraria
3. Fixed or variable allowances
4. Commission
5. Fees
6. Tips and Gratuities
7. Hazard or emergency pay
8. Retirement pay
9. Seperation pay
10. Pension
11. Vacation and sick leave
12. Thirteenth month pay and other benefits
13. Fringe benefits and de minimis
14. Overtime pay
15. Profit sharing
16. Awards for special services
17. Beneficial payments
18. Other forms of compensation
I. Shares of stock received as compensation
II. Stock option
III. Cancellation of debt
IV. Insurance premium as compensation
V. Income tax paid as compensation
VI. Convenience of the employer’s rule
VII. Living quarters
VIII. Meals subsidized by employer
IX. Remuneration for casual labor

GROSS INCOME FROM BUSINESS AND PROFESSION

 Gross Income from Business

1. Manufacturing
 2. Merchandising or Trading
3. Servicing
4. Farming
5. Long-term contracts
 Gross Income from Profession/ Services
 Telegraph and cable services
 Rental Income

GAINS FROM DEALINGS IN PROPERTY

PASSIVE INCOME

1. Yield from deposit substitutes and Trust Fund

2. Interest income
3. Royalty income
4. Dividend income
5. Prizes and winnings

PARTNERS’ DISTRIBUTIVE PROFITS FROM PROFESSIONAL PARTNERSHIP’S NET INCOME

OTHER SOURCES OF INCOME

1. Bad debt recovery

2. Tax refund or credit
3. Damages recovery
4. Annuities
5. Income from whatever sources
I. Illegally obtained income
II. Embezzled funds
III. Income received by error

EXCLUSIONS

The following items shall not be included in gross income and shall be exempt from taxation;

Nontaxable Compensation Income

1. Compensation income including holiday pay, overtime pay, night shift differential pay and hazard pay
earned by the minimum wage earner, who has no other reportable income;

2. Compensation income and/or business income earned outside the Philippines by a Filipino Overseas
Contract Worker, nonresident Filipino Citizen, resident alien and foreign corporation;

3.13th month pay and other benefits not exceeding ₱90,000 per year;

4. De minimis benefits within the prescribed ceiling;

5. Compensation received under employer’s convenience benefit rule;

6. Proceeds of life insurance policies paid to the heirs upon the death of the insured;

7. Amounts received through accident or health insurance, or under the Workmen’s Compensation Act,
as compensation for personal injuries or sickness plus the amounts of any damages received, whether by
suit or agreement, on account of such injuries or sickness;

8. Retirement benefits under RA 7641 and those received by officials and employees of private firms,
whether individual or corporate, in the accordance with a reasonable private plan maintained by the
employer. The following conditions must be met:

a) The retiring official or employee has been in the service of the same employer for atleast 10 yrs;
b) He/she is not less than 50 years of age at the time of retirement; and
c) He/ she has not availed of similar benefits in the past.

The law does not require that the employee’s service should be uninterrupted within 10 years;

9. Any amount received by an official or employee or by his heirs from the employer as a consequence of
separation of such official or employee from the service of the employer because of death, sickness or
other physical disability or for any cause beyond the control of the said official or employee;

10. Social security benefits, retirement gratuities, pensions and other similar benefits received by the
resident or nonresident citizens of the Philippines or aliens who came to reside permanently in the
Philippines, from the foreign government agencies and other institutions, private or public;

11. Benefits received from or enjoyed under the Social Security System (SSS), including maternity
benefits as stipulated in RA 8282;

12. Benefits received from the GSIS, including the retirement gratuity received by the government
officials and employees;

13. GSIS, SSS, Medicare (Phil-health) and PAG-IBIG contributions and union dues of individuals;

14. Salaries and stipends in dollars received by non-Filipino citizens serving as staff of the International
Rice Research Institute and the Ford Foundation;
15. Tax exemption of allowances paid to military personel

16. Casual employment like house helper/maid not connected in the conduct of business of employer.

Nontaxable Other Receipts

1. The amount received by the insured as a return of the premiums paid by him under life insurance,
endowment or annuity contract either during the term or at the maturity of the term mentioned in the
contract or upon the surrender of the contract.

2. The value of the property by gift, bequest, devise or descent: provided, however, that the income from
such property, as well gift, bequest, devise or descent of income from any property, in case of transfers
of divided interest, shall be included in the gross income.

3. Income of any kind to the extent required by any treaty obligation binding upon the Goverrnment of
the Philippines.

4. Payments of benefits due to any person residing in Philippines under laws of the United States
administered by the United States Veterans Administration (USVA).

5. Income Derived from investments in the Philippines in loans, stocks, bonds or other domestic
securities, or from interest on deposits in banks in the Philippines by:

a) Foreign governments;
b) Financing institutions, owned, controlled or enjoying refinancing from foreign governments; and
c) International or regional financial institutions established by foreign governments.

6. Income derived from any public utility or from the exercise of any essential governmental function
accruing to the Government of the Philippines or to any political subdivision thereof.

7. Prizes and awards made primarily in the recognition of religious, charitable, scientific, educational;,
artistic, literary, or civic achievement, but only if the recipient was (is)

a) Selected without any action on his part to enter the contest of proceeding, or
b) Not required to render substantial future services as a condition to receive such prize or award.

8. Prizes and awards granted to athletes in local and international sports competitions and tournaments
whether held in the Philippines or abroad and sanctioned by their national sports associations.

9. Gains realized from the sale or exchange or retirement of bonds, debentures, or other certificate of
indebtedness with a maturity of more than 5 years.

10. Interest on long-term deposits or investments in banks (with maturity of 5 years or more) received
by individuals (except nonresident aliens not engaged in business or practice of the profession in the
Philippines.
11. Interest received by a nonresident individual or nonresident corporation from deposits with the
depository banks under the expanded foreign currency deposit system.

12. Interest on the price land covered by CARP (Comprehensive Agrarian Reform Program).

13. Gains realized by the investor upon redemption of shares of stock of a mutual fund company.

14. Intercorporate dividend, or dividend received by Domestic Corporation or resident foreign

corporation from a domestic corporation.

15. Income earned by non-resident and by alien from sources outside the Philippines.