I.

Amendments made by the TRAIN Law to Income Tax of Individuals

Graduated Tax Rates

One of the salient changes made by the TRAIN law is the reduction of personal income
tax of majority of the individual taxpayers. Under the NIRC, the graduated tax rate that an
individual taxpayer has to pay ranges from 5% to 32%, depending on one’s bracket. 1

Under Train, an individual with a taxable income of P250,000 or less will now be exempt
from income tax. Those with a taxable income of above P250,000 will be subject to the rate of
20% to 35% effective 2018, and 15% to 35% effective 2023. The highest amount of taxable
income was set at more than P8,000,000, subjecting it to a higher marginal rate of 35%.2

The number of tax brackets has been reduced from seven (7) to six (6).3

Income Tax Rates under the NIRC

P 10,000 and below 5%

Above P10,000 to P30,000 P500 + 10% of the excess over P10,000

Above P30,000 to P70,000 P2,500 + 15% of the excess over P30,000

Above P70,000 to P140,000 P8,500 + 20% of the excess over P70,000

Above P140,000 to P250,000 P22,500 + 25% 0f the excess over P140,000

Above P250,000 to P500,000 P 50,000 + 30% of the excess over P250,000

Above P500,000 P 125,000 + 32% of the excess over P500,000

Graduated Tax Rates under the TRAIN Law

Tax Schedule Effective January 1, 2018 to December 2022

Annual Income Tax Rate

Not over 250 000 0%

Over P250,000 but not over P400,000 20% of the excess over P250,000

1 Section 24, NIRC.

2 Section 5, TRAIN law
3 NRTC Tax Research Journal Vol. XXIX. 6 November- December 2017. Retrieved June 15, 2018 from
http://www.ntrc.gov.ph/images/journal/2017/J20171112A.pdf
 Over P400,000 but not over P800,000 P30,000 + 25% of the excess over P400,000

Over P800,000 but not over P2,000,000 P130,000 +30% of the excess over P800,000

Over P2,000,000 but not over P 8,000,000 P490,000 + 35% of the excess over P2,000,000

Over 8,000,000 P2,410,000 + 35% of the excess over P8,000,000

Self-Employed Professionals

The TRAIN Law added Section 24(A)(2)(B), (C) and (D) whereby:

a. Self-employed and/or Professionals whose gross sales or gross receipts do not exceed the
VAT threshold in Section 109 (P3,000,000) will be subject to 8% income tax on gross
sales or gross revenues in excess of P250,000 in lieu of percentage tax.

b. Self-employed and/or Professionals whose gross sales or gross receipts exceed the VAT
threshold in Section 109 (P3,000,000) shall be taxed in the same manner as corporations
as to the applicable tax rate, minimum income tax and allowable deductions, as provided
in Sections 27(A), 27(E) and 34 of the Tax Code

c. Professionals shall be required to present a certificate of tax payment from the BIR or
certified true copy of their latest income tax return, at the option of the taxpayer, upon
application for renewal of their respective professional license.4

Nonresident Alien Individual

Under the NIRC, the following non-resident alien individuals enjoy preferential income
tax rates at 15% of gross income/salaries, wages, annuities, compensation, remuneration and
other emoluments :
a. alien individuals employed by regional or area headquarters and regional operating
headquarters of multinational companies,
b. offshore banking units established in the Philippines, and
c. petroleum service contractors and subcontractors.5

The TRAIN Law removed the preferential income tax rates enjoyed by non-resident alien
individuals who are employed by: regional or area headquarters and regional operating
headquarters of multinational companies, offshore banking units, and petroleum service
contractors and subcontractors.6
4 Section 6, Train Law.
5 Section 25, NIRC.
6 Section 6, TRAIN Law.
 Definition of Taxable income

The term 'taxable income' is defined by the NIRC as the pertinent items of gross income
specified in the Code, less the deductions and/or personal and additional exemptions, if any,
authorized for such types of income by the Code or other special laws.7

The TRAIN Law removed from the definition of taxable income personal and additional
exemptions, and deductions authorized under special laws.8

Tax Imposition on PCSO and Lotto winnings

Philippines Charity Sweepstakes and Lotto winnings are exempted from the 20% final
tax under the NIRC.9 Such exemption has been removed by the TRAIN law.10

Income derived from Depository Bank

The NIRC provides that the interest income derived by a domestic corporation from a
depository bank under the expanded foreign currency deposit system shall be subject to a final
income tax at the rate of seven and one-half percent (7 1 /2%) of such interest income. 11 The rate
of the final income tax has been increased to 15% by the TRAIN Law.

Exclusions from Gross Income, Miscellaneous Items

Under the NIRC, the threshold for tax exemption on 13th month pay and other bonuses
received by salaried employees is P82, 000.12 The TRAIN law raised the threshold to P90,000,
which means that 13th month pay and other bonuses will exempted from tax.13

Fringe Benefit Tax

A final tax of thirty-two percent (32%) is imposed by the NIRC on the grossed-up
monetary value of fringe benefit furnished or granted to the employee (except rank and file
employees as defined herein) by the employer, whether an individual or a corporation (unless the
fringe benefit is required by the nature of, or necessary to the trade, business or profession of the
7 Section 31, NIRC
8 Section 8, TRAIN Law.
9 Section 24 (B) (1), NIRC
10 Section 5, TRAIN Law.
11 Section 27, NIRC
12 Section 32 (B) (7) (e), NIRC.
13 TRAIN Law
employer, or when the fringe benefit is for the convenience or advantage of the employer). The
tax imposed is payable by the employer. The grossed-up monetary value of the fringe benefit
shall be determined by dividing the actual monetary value of the fringe benefit by xx sixty-eight
percent (68%) .14

Under the TRAIN Law, effective January 1, 2018 and onwards, the Fringe Benefit Tax
rate and the corresponding divisor used to compute the grossed-up monetary value of fringe
benefits are revised from 32% and 68% to 30% and 70%, respectively. Effective 2022 and
thereafter, the fringe benefit shall form part of the gross income of the recipient employee subject
to the regular income tax rates.

Optional Standard Deduction

According to the NIRC, an individual subject to tax under Section 24, other than a
nonresident alien, may elect a standard deduction in an amount not exceeding forty percent
(40%) of his gross sales or gross receipts, as the case may be. In the case of a corporation subject
to tax under Sections 27(A) and 28(A)(1), it may elect a standard deduction in an amount not
exceeding forty percent (40%) of its gross income as defined in Section 32 of this Code.15

Under the TRAIN Law, individuals may no longer apply the 40% Optional Standard
Deduction in lieu of itemized deductions.

Personal and Additional Exemptions

Under the NIRC, an individual may avail of personal exemption worth P50,000 and
additional exemption of P25,000 per dependent , maximum of P100,000 if there are four
dependents, which is to be deducted from the taxable income. 16The TRAIN law removed
provisions regarding such personal and additional exemptions.. Personal, additional exemptions
and premiums paid on health and/or hospitalization insurance are deemed to be integrated into
the P 250,000 exempt threshold.17

Premium payments on health and/or hospitalization

The deduction for premium payments on health and/or hospitalization of an individual

taxpayer of P2,400 per family is removed by the TRAIN Law.

14 Section 33, NIRC

15 Section 34, NIRC
16 Section 35, NIRC.
17 NRTC Tax Research Journal Vol. XXIX. 6 November- December 2017. Retrieved June 15, 2018 from
http://www.ntrc.gov.ph/images/journal/2017/J20171112A.pdf