Week 10 Exclusions from the Gross Income 2024-25 PDF

Week 10 Exclusions from the Gross Income Section 32(B) of the Tax Code Exclusions from the gross income refer to flow of wealth to the taxpayers which are not considered part of the gross income for purposes of computing the taxpayers’ taxable income due to the following: 1. It is exempted by...

Week 10 Exclusions from the Gross Income Section 32(B) of the Tax Code Exclusions from the gross income refer to flow of wealth to the taxpayers which are not considered part of the gross income for purposes of computing the taxpayers’ taxable income due to the following: 1. It is exempted by the fundamental law or by statute 2. It does not come within the definition of income Exemption from taxation is a mere “privilege” which may be revoked by the government unless the exemption is founded on a contract which is protected from impairment. Exemption are not favored and are construed strictly against the taxpayer and liberally in favor of the government. Exclusions from Gross Income. - The following items shall not be included in gross income and shall be exempt from taxation under this Title: (1) Life Insurance. - The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income. 2) Amount Received by Insured as Return of Premium. - The amount received by the insured, as a return of premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract. 3) Gifts, Bequests, and Devises. - The value of ( property acquired by gift, bequest, devise, or descent: Provided, however, That income from such property, as well as gift, bequest, devise or descent of income from any property, in cases of transfers of divided interest, shall be included in gross income. (4) Compensation for Injuries or Sickness. - amounts received, through Accident or Health Insurance or under Workmen's Compensation Acts, 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. 5) Income Exempt under Treaty. - ( Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. (6) Retirement Benefits, Pensions, Gratuities, etc.- (a) Retirement benefits received under Republic Act No. 7641 and those received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer: Provided, That the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement Provided, further, That the benefits granted under this subparagraph shall be availed of by an official or employee only once. Case A- Gifts over and above the Retirement Pay A taxpayer worked as audit manager of a hospital for several years. When he retired at age 60, he received retirement pay equivalent to two months’ salary for every year of service as provided in the hospital BIR-approved retirement plan. The Board of Directors of the hospital felt that the hospital should give the retired employee more than what was provided for in the hospital’s retirement plan in view of his loyalty and invaluable services for several years. Hence , it resolved to pay him a gratuity of P2,000,000. Over and above his retirement pay. The commissioner of Internal Revenue taxed theP2,000,000. As part of the gross compensation income of the retired employee who protested that it was excluded from income because it was a retirement pay and a gift. Question 1: Should the additional P2,000,000. Received by the retired employee be excluded from income? Answer : No The additional P2M is a taxable compensation income because it is not a part of retirement pay. Question 2: Is the taxpayer correct in claiming that the additional P2,000,000. Was a gift and therefore excluded from income Answer : NO The amount received was in consideration of his loyalty and invaluable services to the company which is clearly a compensation income received on account of employment or arising out of employer - employee relationship. b) 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. (c) The provisions of any existing law to the contrary notwithstanding, social security benefits, retirement gratuities, pensions and other similar benefits received by resident or nonresident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public (d) Payments of benefits due or to become due to any person residing in the Philippines under the laws of the United States administered by the United States Veterans Administration. (e) Benefits received from or enjoyed under the Social Security System in accordance with the provisions of Republic Act No. 8282. (f) Benefits received from the GSIS under Republic Act No. 8291, including retirement gratuity received by government officials and employees. (7) Miscellaneous Items. – (a) Income Derived by Foreign Government. - 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 (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments. b) Income Derived by the Government or its Political Subdivisions. - 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. (c) Prizes and Awards. - Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement but only if: (i) The recipient was selected without any action on his part to enter the contest or proceeding; and (ii) The recipient is not required to render substantial future services as a condition to receiving the prize or award. (d) Prizes and Awards in sports Competition. - All 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. e) 13th Month Pay and Other ( Benefits. - Gross benefits received by officials and employees of public and private entities: Provided, however, That the total exclusion End of slides