Exclusions From Gross Income

TAXATION 1 | Atty.
Angelo Suan
EXCLUSIONS FROM GROSS INCOME Bar question:

X, while driving home from his office, was seriously
Exclusions from gross income injured when his automobile was bumped from behind
- Flow of wealth to the taxpayer which are not by a bus driven by a reckless driver. As a result, he had
treated as part of gross income, for purposes to pay Php 200,000 to his doctor and Php 100,000 to
of computing the taxpayer’s taxable income the hospital where he was confined for treatment. He
due to the following reasons: filed a suit against the bus driver and the bus company
(1) It is exempted by the fundamental law; and was awarded and paid actual damages of Php
(2) It is exempted by statute; 300,000 (for his doctor and hospitalization bills), Php
(3) It does not come within the definition of 100,000 by way of moral damages, and Php 50,000 for
income. what he had to pay his attorney for bringing his case to
the court. Which, if any, of the following awards are
Exclusions from Gross Income taxable income to X and which are not? Explain.
1. Proceeds from life insurance policies- Proceeds of
life insurance policies, paid by reason of the death of Suggested answer:
an insured to his estate or to any beneficiary Nothing is taxable. Under the Tax Code, any amount
(individual, partnership, or corporation, but not a received as compensation for personal injuries or
transferee for a valuable consideration), directly or in sickness, plus the amounts for any damages received
trust, are excluded from the gross income of the whether by suit or agreement, on account of such
beneficiary. It is immaterial whether the proceeds are injuries or sickness shall be excluded from gross
received in a single sum or in installments. The income. Since the entire amount of Php 450,000
exclusion from income taxation applies regardless of received represents award of damages on account of
who the beneficiary is, whether a family member or the injuries sustained, all shall be excluded from his
other individual, corporation, or partnership. Life gross income.
insurance is a contract of indemnity and the proceeds
of life insurance policies are considered as an 5. Income exempt under treaty- Income of any kind, to
indemnity rather than as gains or profits. If, however, the extend required by any treaty obligation binding
such proceeds are held by the insurer under an upon the Government, is exempt from income tax.
agreement to pay interest thereon, the interest Ex: Interest income from foreign currency loan
payments must be included in income. extended by Asian Finance and Investment
- shall be taxed at graduated income tax rates. Corporation of Singapore is exempt from 20% final
withholding tax under the tax treaty.
2. Amounts received under life insurance, endowment
or annuity contracts. – excluded from gross income, but 6. Retirement benefits received under RA 7641, RA
if such amounts (when added to amounts already 4917 and Section 60(B) of the 1997 Tax Code. –
received before the taxable under such contract) exempted provided that the retiring official or employee
exceed the aggregate premiums or considerations paid has been in the service of the same employer for at
(whether or not paid during the taxable year), then the least 10 years and is not less than 50 years of age at
excess shall be included in gross income. the time of his retirement, and the benefit shall be
availed of by an official or employee only once.
3. Value of property acquired by gift, bequest, devise
or descent – if it is to be made at intervals, it is taxable Retirement benefits of 51-year-old employee who has
to the done (or beneficiary) to the extent that it is made rendered 23 years of continuous service to the
out of income. company is still subject to income tax and withholding
- these are excluded, but not the income from such tax, because the retirement plan of said employee
property. requires minimum of 55 years of age and 25 years of
continuous service.
4. Amounts received through accident or health
insurance- amounts received through accident or 7. Prizes and awards in recognition of religious and
health insurance or under workmen’s compensation charitable accomplishments – Prizes and awards
acts, as compensation for personal injuries or sickness, made primarily in recognition of religious, charitable,
plus the amounts of any damages received, whether by scientific, educational, artistic, literary, or civic
suit or agreement, on account of such injuries or achievement but only if:
sickness. i. the recipient was selected without any action on his
- Compensations for damages to personal or family part to enter the contest or proceeding; and
rights, damages for slander and libel, award for loss of ii. the recipient is not required to render substantial
life, damages for injuries to the goodwill of a taxpayer’s future service as a condition to receiving the prize or
business are not taxable, unless they exceeded its award.
cost.
8. Prizes and awards for sports competitions – All
prizes and awards grated to athletes in local and
CONCON 2020-2021 1
TAXATION 1 | Atty. Angelo Suan
international sports competitions and tournaments 3. It must be paid or incurred in carrying on or which
whether held in the Philippines or abroad and are directly attributable to the development,
sanctioned by their national sports associations. management, operation and/or conduct of the trade,
business, or exercise of profession;
9. 13th month pay and other gross benefits (as 4. It must be supported by adequate invoices or
amended by the TRAIN Law) – exempted only up to receipts;
the extent of Php 90,000. 5. It is not contrary to law, public policy, or morals; and
6. The tax required to be withheld on the expense paid
10. GSIS, SSS, Medicare and Pag-IBIG Contributions or payable is shown to have been remitted to the BIR.
Non-Stock, Non-Profit Educational Institution
- Real property tax- subject to tax if it is actually,

directly and exclusively use
- Income tax- not subject to tax if it is actually,
directly and exclusively use whether it is
sourced from commercial purposes,
regardless of the use. – what matters is how
it is utilized.
Exclusions vs. Deductions
Exclusions from gross income refer to a flow of wealth

to the taxpayer which are not treated as part of gross
income, for purposes of computing the taxpayer’s
taxable income.
Deductions from gross income, on the other hand, are

the amounts, which the law to be deducted from gross
income in order to arrive at net income.
Exclusions pertain to the computation of gross income

in order to arrive at net income.
Exclusions are something received or earned by the

taxpayer, which do not form part of gross income while
deductions are something spent or paid in earning
gross income.
Deductions are construed strictly against the taxpayer

claiming it
- It is incumbent upon the taxpayer to establish
a clear right to tax exemption.
Types of Deductions from Gross Income
a.) Itemized deductions in Section 34 (A) to (J) and (M)

available to all kinds of taxpayers engaged in trade or
business or practice of profession in the Philippines.
b.) Optional standard deduction in Section 34 (L)
available to individual and corporate taxpayers deriving
business, professional, capital gains, passive income,
or other income not subject to final tax; and
c.) Special deductions in Sections 37 and 38, both of
the Tax Code, and in special laws like the BOI Law.
Business Expenses
Conditions for deductibility of business expense:
1. It must be ordinary and necessary- it forms part of
the normal operations of the business;
2. It must be paid and incurred during the taxable year;
CONCON 2020-2021 2

Exclusions From Gross Income

Uploaded by

Copyright:

Available Formats

Exclusions From Gross Income

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Exclusions From Gross Income

Uploaded by

Copyright:

Available Formats

TAXATION 1 | Atty.

EXCLUSIONS FROM GROSS INCOME Bar question:

Non-Stock, Non-Profit Educational Institution

- Real property tax- subject to tax if it is actually,

Exclusions vs. Deductions

Exclusions from gross income refer to a flow of wealth

Deductions from gross income, on the other hand, are

Exclusions pertain to the computation of gross income

Exclusions are something received or earned by the

Deductions are construed strictly against the taxpayer

Types of Deductions from Gross Income

a.) Itemized deductions in Section 34 (A) to (J) and (M)

You might also like