Individual Income Taxation Personal and Additional Exemptions

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Individual Income Taxation Personal and Additional Exemptions LECTURE No. 5 ESTELITA C. AGUIRRE, CPA, MM

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Individual Income Taxation Personal and Additional Exemptions. LECTURE No. 5 ESTELITA C. AGUIRRE, CPA, MM. Title II, Chapter 7, NIRC. Allowable Deductions Personal and Additional Exemptions As amended by R.A. 9504 - PowerPoint PPT Presentation

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Page 1: Individual Income Taxation Personal and Additional Exemptions

Individual Income TaxationPersonal and Additional Exemptions

LECTURE No. 5

ESTELITA C. AGUIRRE, CPA, MM

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Title II, Chapter 7, NIRC

Allowable Deductions Personal and Additional Exemptions

As amended by R.A. 9504 (effective July 6, 2008)

Allowance for Personal Exemption (Sec 35)

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Definitions

Personal exemption

is an arbitrary amount granted by law to individual taxpayers in general,

representing their personal, family and living expenses

or minimum subsistence for themselves and for their dependents.

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Definitions

Dependent

a legitimate, illegitimate or legally adopted child - chiefly dependent upon and

- living with the taxpayer-not more than 21 years of age.-unmarried-not gainfully employed-regardless of age, is incapable of

self-support because of mental or physical defect.

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Who are entitled to PE?

1. resident citizens

2. resident aliens

3. non-resident citizens with income in the Phil

4. non-resident aliens engaged in trade or business in the Phil

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Who are NOT entitled to PE?

1. special aliens with preferential rate of 15%

2. special Filipino counterpart of aliens with with preferential rate of 15%

3. non-resident aliens not engaged in trade or business in the Phil

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Personal Exemptions

Sec 35AFor each individual taxpayer P50,000

Sec 35BFor each qualified dependent (child) P 25,000Not to exceed 4 children)

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Rules on Personal Exemptions

In the case of married individuals where only one spouse is deriving gross income, only such spouse shall be allowed the personal exemption.

If both spouses are deriving gross income. Eachone is entitled to the personal exemption.

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Rules on Personal exemptions

The taxpayer can claim additional exemption for children only.

Parents, siblings and other relatives who areDependents of the taxpayer are not entitled toAdditional exemption

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Qualification of a Dependent Child

Sec 35B

Legitimate,illegitimate,legally adopted child must be 1. chiefly dependent upon and living with the taxpayer2. unmarried3. not gainfully employed4. not more than 21 years of age (Note: regardless of age, if incapable of self- support because of mental or physical defect)

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Rules on Additional Exemptions

1. Can be claimed by only one spouse in the case of married individuals.

2. If legally separated, can be claimed by the spouse who was judicially awarded custody of the child: Provided, that the total amount of additional exemption that may be claimed by both shall not exceed P100,000.

3. The husband has the right to claim the additional exemption for the children or to waive such right in favor of the wife.

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Rules on Additional Exemptions

4. The wife may claim the additional exemptions under the following situations:

a. The husband has no earnings or income.b. The husband is non-resident citizen earning income from outside the Phil only.c. The husband issues a waiver in favor of the wife.

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Change of Status Rule

Sec 35C

1. If a child is born during the year, full additional exemption can be claimed by taxpayer

2. If a child becomes 21, marries or becomes gainfully employed during the year, taxpayer can claim full additional exemption for the year

3. If the taxpayer dies during the year, his estate may claim the personal and additional exemption as if he died at the close of the year

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PE for NRAETBP

Sec 35D

A nonresident alien individual ETBP shall be entitled to a personal exemption in the amount equal to

the exemption allowed in the income tax law in his country to citizens of the Phil not residingin such country, not to exceed the amount fixedby law as exemptions for Filipinos.

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Rules on PE for NRAETBP

Sec 35D

The same privilege is accorded a NRAETBP1. NRAETB are granted PE, only if there is an

existing reciprocal agreement between the Phil and his country.

2. If the law of the country allows to Filipinos both basic and additional personal exemption for the purpose of computing income tax on income

derived from the country of such NRAETBP

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Rules on PE for NRAETBP

Sec 35D

3. The amount of the allowed personal exemptions to consider shall be the lower amount between the personal exemption granted under the tax laws of his country and the personal exemptions granted by the tax laws of the Phil.

4. He must file a true and accurate tax return of the – total income received by him from all sources within

the Phil.

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Rules for Parents & Children

1. A Minor child who is gainfully employed shall file his/her own return through the parents/guardian.

2. Income from donated properties by parents shall be included in the ITR of the child if donor’s

tax has already been paid or if the transfer of property is exempt from donor’s tax.

3. If donor’s tax has not yet been paid, income from

donated properties shall be included in income tax return of donor-parent.

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Optional Standard Deduction

Section 34L

The OSD, which is in lieu of the itemized deductions is a privilege that may be enjoyed by both individuals and corporations.

For individuals (RC, RA, NRAEBP, NRC with income from within Phil ):

40% of his gross sales or gross receipts

For corporations (DC, RFC) 40% of its gross income as defined under

Section 32

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Requisites of OSD

1. Unless the taxpayer signifies in his return his intention to elect OSD, he is considered as having availed of itemized deductions;

2. Such election shall be irrevocable for the taxable year for which the return is made but he can change

to itemized deduction in succeeding year/s;

3. One who claims OSD shall not be required to submit with his tax return such financial statements otherwise required by the Tax Code.

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Health and/or Hospitalization

Sec 34M

Premium Payments on Health and/or Hospitalization Insurance

can be claimed by individuals classified as an employee, self-employed or both

can be claimed by a RC, a RA, NRC having income from within and a NRAEBP.

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Conditions and Limitations

Conditions and Limitations

1. There must be an actual Health and Hospitalization Premium payments made during the year. 2. The amount of premium shall not exceed P2,400

per year taken by the taxpayer for himself and his family. 3. Said family (husband and wife) has a gross income of not more than P250,000 4. In case of married couple, only the spouse claiming

the additional personal exemption can claim HHP.

5. If married couple has no dependent children, then the husband shall claim unless he waives it for wife.

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Compensation

Gross Compensation Income Less: Health/Hospital Insurance Premium* Less: Personal and Additional Exemptions Taxable Net Income x 5 to 32%

* allowed only if gross income is not > P250,000 ** OSD, not applicable

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Business and Profession(Claiming OSD)

Option in lieu of itemized deduction

Gross Sales/Receipts Less: 40% Optional Standard Deduction Gross Income Less: Health/Hospital Insurance Premium* Less: Personal and Additional Exemptions Taxable Net Income x 5 to 32%

* allowed only if gross income is not > P250,000

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Business and Profession(claiming itemized deductions)

Option in lieu of itemized deduction

Gross Sales/Receipts Less: 40% Optional Standard Deduction Gross Income Less: Health/Hospital Insurance Premium* Less: Personal and Additional Exemptions Taxable Net Income x 5 to 32%

* allowed only if gross income is not > P250,000

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Mixed Income (Claiming OSD)

Gross Sales/Receipts Less: 40% OSD of Gross Sales/Receipts Gross Income Add: Gross Compensation Income Total Business and Compensation Income Less: Health/Hospital Insurance Premium* Less: Personal and Additional Exemptions Taxable Net Income x 5 to 32% * allowed only if gross income is not > P250,000

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Mixed Income(claiming Itemized Deductions)

Gross Sales/Receipts Less: Cost of Sales Gross Income Less: Itemized allowable deductions Net Income Add: Gross Compensation Income Total Business and Compensation Income Less: Health/Hospital Insurance Premium* Less: Personal and Additional Exemptions Taxable Net Income x 5 to 32% * allowed only if gross income is not > P250,000

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Income Taxation

End of presentation . . .

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