INCLUSIONS IN GROSS INCOME

1. Compensation income
a. Salaries
b. Wages
c. Emoluments
d. Honoraria
e. Allowances
f. commissions (e.g. transportation, representation, entertainment and the like)
g. fees including director's fees, if the director is, at the same time, an employee of the
employer/corporation
h. taxable bonuses
i. fringe benefits, except those which are subject to the fringe benefits tax under Sec, 33 of
the Code
j. allowable “de minimis” benefits;
k. taxable pensions
l. retirement pay;
m. Sick leave of an employee from private sector who is retiring at his option
n. Vacation leave in excess of 10 days of an employee from private sector who is retiring at
his option
o. 13th month pay
p. Separation pay received by employee not because of death, sickness, or other physical
disability, or for any cause beyond the control of such official or employee
2. Professional income or income derived from the exercise of a profession
3. Income derived from business whether legal or illegal, registered or unregistered
4. Ordinary and capital gains derived from dealings in property
5. Royalty income derived from the sale of royalty on a regular basis for a consideration
6. Rental income
a. Leasehold improvements which will become the property of the lessor upon expiration of
the lease contract
b. Security deposits which are received by lessor when lessee violates any provision of the
contract
c. Advance rentals
7. Amount of the annuity in excess of the premiums paid
8. Excess amount of the total premium returns which exceed the aggregate premiums paid
9. Amount of the annuity which represents interests
10. The excess of the premium paid in an endowment where the insured does not die and survives
the designated period
11. Life insurance proceeds held by the insurer under an agreement to pay interest
12. Life insurance policy is used to secure money obligation
13. Life insurance policy was transferred for a valuable consideration
14. The recipient of the insurance proceeds is a business partner of the deceased and the insurance
was taken to· compensate the partner-beneficiary for any loss in income that may result as the
death of the insured partner
15. The recipient of the insurance proceeds is the partnership in which the insured is a partner and
the insurance was taken to compensate the partnership for any loss in income that may result
from the dissolution of the partnership caused by the death of the insured partner
16. The recipient of the life insurance proceeds is a corporation in which the insured was an
employee or officer
17. Prizes derived from sources within PH by an individual amounting to 10,000 or less
18. Prizes and winning from sources without the Philippines by a resident citizen individual
19. Prizes and winning of corporations from whatever source
 20. Pensions is taxable to the extent of the amount received except if there is a BIR approved
pension plan
21. Prizes and awards granted to athletes in sports competition which are not sanctioned by their
national sports associations
22. Interests
23. The recovery of bad debts previously allowed as deduction in the preceding year or years shall
be included as part of the taxpayer’s gross income in the year of such recovery to the extent of
the income tax benefit of said deduction.
24. Compensation for lost profits

EXCLUSIONS

1. Income derived by the Government or its political subdivisions from the exercise of any essential
government function
2. Income derived by the Government or its political subdivision is exempt from gross income, if the
source of the income is from any public utility or from the exercise of any essential governmental
functions.
3. Proceeds of life insurance policies paid by reason of death of the insured to his heirs or
beneficiaries whether in a single sum or otherwise
4. Proceeds received by the beneficiary in an endowment where the insured dies
5. Amounts received by the insured as return of premiums in a life insurance, endowment, or
annuity contracts that were received during the term or at the maturity of the term mentioned in
the contract, or upon surrender of the contract
6. Value of property acquired by gift, bequest, or devise
7. Amounts received through Accident or Health Insurance or Workmen's Compensation Act as
compensation for personal injuries or sickness
8. Amounts of any damages received whether by suit or agreement on account of such injuries or
sickness
9. Actual or compensatory, moral, nominal, temperate, and liquidated damages on account of
physical injuries or sickness
10. Income exempt from tax treaty
11. Retirement benefits received under RA No. 4917
12. Retirement benefits received under RA No. 7641
13. Monetized leave credits of government officials and employees
14. Sick leave of compulsory retiring official or employee from a private sector
15. Vacation leave up to 10 days of compulsory retiring official or employee from a private sector
16. Separation pay received by employee because of death, sickness, or other physical disability, or
for any cause beyond the control of such official or employee
17. Foreign social security, retirement, gratuities, pensions, etc.
18. Benefits due to residents under laws of the United States administered by the United States
Veterans Administration
19. SSS benefits received in accordance with RA. No. 8282
20. GSIS benefits received under RA 8291
21. Winning, prizes, and awards which are made primarily in recognition of religious, charitable,
scientific, educational, artistic, literary, or civic achievement without any action on his part and
recipient is not required to render substantial future services
22. Prizes and awards granted to athletes in sports competition which are sanctioned by their
national sports associations
 23. PEZA-registered enterprises are given income tax holidays for 6 or 4 years from the date of start
of commercial operation, depending on whether their activities are considered as pioneer
24. gain arising from the transfer of agricultural property covered under RA 5557
25. BSP is exempt from all national, provincial, municipal, and city taxes for 5 years
26. NHA is exempt from all fees and charges of any kind, whether local or national. such as income·
and realty taxes
27. compensation income: falling within the term "statutory minimum wage'' (SMW) paid to SMW
earners

DEDUCTIONS

1. Ordinary and necessary trade, business, or professional expenses

2. Salaries
3. Wages.
4. Other Forms of Compensation for Personal Services Actually Rendered like salaries, wages.
commissions., professional fees, vacation-leave pay, retirement pay and other compensation,
Bonuses in good faith, Pensions and compensation for injuries if not compensated for by
insurance or otherwise, GMV of fringe benefit provided for, as long as the final tax imposed has
been paid
5. Travel/Transportation expense
6. Rentals and/or Other Payments for Use or Possession of Property
7. Repairs and Maintenance
8. Expenses under Lease Agreement like cost of repairs maintenance, salaries and wages of
employees attendant to such lease, interest payment. property taxes. etc.
9. The lessee may deduct the amount of rent paid or accrued including all expenses which under
the terms of the agreement, the lessee is required to pay to. or for the account of the lessor.
10. A professional may claim deductions for the cost of supplies used by him in the practice of his
profession; expenses paid in the operation and repair of transportation equipment used in
making professional calls, dues to professional societies and subscriptions to professional
journals, the rent paid for office rooms, the expenses of the fuel, light, water, telephone, etc.,
used in such offices, and the hire of office assistants
11. Amounts currently expended for books, furniture, and professional instruments and equipment,
the useful life of which is short, may be deducted
12. Entertainment/amusement/representation expenses for taxpayers engaged in sale of
goods/properties which does not exceed (.50%) of net sales
13. Entertainment/amusement/representation expenses for taxpayers engaged in sale of services
which does not exceed (1%) of net revenues
14. Political Campaign expenses during the campaign period
15. Interest expenses of the taxpayer paid or incurred during the taxable year and indebtedness is
based on a bona fide debtor-creditor relationship, and connected with taxpayer’s trade, business,
or exercise of profession, stipulated in writing, must be legally due, and subject to interest
arbitrage rule. It must not be between related taxpayers and not incurred to finance petroleum
operations.
16. Import duties
17. Business license, privilege. excise and stamp taxes
18. Local government taxes (real property taxes, license taxes. professional taxes. amusement taxes.
franchise taxes)
19. Documentary stamp taxes;
20. Excise taxes
21. Losses actually sustained during the taxable year and not compensated for by insurance or other
forms of indemnity
22. Capital losses
23. Losses resulting from securities becoming worthless
24. Special losses such as losses from wash sales, wagering losses and abandonment losses
25. Net operating loss carry over
26. Casualty losses
27. Bad debts which are connected with the taxpayer’s trade, business, or practice of profession and
actually charged off in the books of accounts of taxpayer as of the end of the taxable year of
worthlessness
28. Depreciation of property used in the trade or business
29. Depletion of oil and gas wells and mines
30. Exploration expenditures
31. Development expenditures
32. Charitable contributions of individuals not in accordance with the national priority plan shall not
exceed 10% of taxable income before contributions
33. Charitable contributions of corporations not in accordance with the national priority plan shall not
exceed 5% of taxable income before contributions
34. Donations to the Government of the Philippines or any of its agencies or any political subdivisions
including fully-owned government corporations to be used exclusively in undertaking priority
activities in health, education, youth and sports development, human settlement, economic
development, culture, and science, according to a National Priority Plan
35. Donations to foreign institutions or international organizations pursuant to agreements. treaties
or commitments by the Philippine government and such institutions or in pursuance of special
laws
36. Donations to accredited NGOs, provided that No part of its net income inures to the benefit of
any private stockholder or individual, Organized and operated exclusively for scientific,
educational, character building and youth and sports development, cultural, health; research,
social welfare, charitable, or any combination thereof
37. Donations or prizes and awards to athletes
38. Contributions to pension trust
39. Extraordinary deductions allowed to insurance companies
40. Special deductions for proprietary educational institutions
41. Special deductions for productivity bonus and manpower· training under the Productivity
Incentives Act of 1990;·
42. Deduction: - for training expenses of qualified jewelry enterprises
43. Deductions under the Adopt-a-School Act of 1990;
44. Deductions under the Expanded Senior Citizens Act of 2003