Year after year, April 15 is a date millions of Filipinos dread.

It is because this date is the annual deadline to file income tax returns.
If you were able to make your own Income Tax Return (ITR) because you fully understand Philippine taxation laws, then good for you. But for
the majority who rely on accountants or their companies to prepare their ITRs, here is a simple and concise explanation of the income tax
law in the Philippines.
Who are required to file Income Tax Returns (ITR)?
According to the Bureau of Internal Revenue (BIR), the following are required to submit Income Tax Returns:

Filipino citizens residing in the Philippines receiving income from sources within or outside the Philippines

Filipino citizens not residing in the Philippines receiving income from sources within the Philippines

Resident or non-resident aliens receiving income from sources within the Philippines

Domestic corporations receiving income from sources within and outside the Philippines

Foreign corporations receiving income from sources within the Philippines

Taxable partnerships
Estates and trusts engaged in trade or business
What is Taxable Income?

Taxable income is the gross income of the taxpayer less any deductions and/or personal and additional exemptions authorized by the Tax
Code or other special laws.
Gross income means all income derived from whatever source. It includes, but is not limited to, Compensation for services, in whatever
form paid; Gross income derived from the conduct of trade or business or the exercise of profession; Gains derived from dealings in propert;
Interest; Rents; Royalties; Dividends; Annuities; Prizes and winnings; Pensions; and Partners distributive share from the net income of the
general professional partnerships.

Exclusions from Gross Income include Life insurance; Amount received by insured as return of premiu; Gifts, bequests and devise;
Compensation for injuries or sickness; Income exempt under treaty; Retirement benefits, pensions, gratuities, etc; Miscellaneous item;
income derived by foreign government; income derived by the government or its political subdivision; prizes and awards in sport competition;
prizes and awards which met the conditions set in the Tax Code; 13th month pay and other benefits; GSIS, SSS, Medicare and other
contributions; gain from the sale of bonds, debentures or other certificate of indebtedness; and gain from redemption of shares in mutual
fund.
What are the allowable deductions from gross income?
Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationships, a
taxpayer may opt to avail either of the following allowable deductions from gross income:

Optional Standard Deduction an amount not exceeding 40% of the net sales for individuals and gross income for
corporations; or
Itemized Deductions which include the following: Expenses; Interest; Taxes; Losses; Bad Debts; Depreciation; Depletion of Oil
and Gas Wells and Mines; Charitable Contributions and Other Contributions; Research and Development; and Pension Trusts

A maximum of P2,400 premium payments on health and/or hospitalization insurance may also be claimed as deduction, provided the annual
family gross income is not be more than P250,000 and for married individuals, the spouse claiming this deduction is the one claiming
additional exemptions for the qualified dependents.
What are the allowable personal and additional exemptions?

Individuals who are earning compensation income, engaged in business or deriving income from the practice of profession are entitled to the
following Personal Exemptions:

For single individual or married individual judicially decreed as legally separated with no qualified dependents P50,000

For head of family P50,000

For each married individual P50,000 (to be claimed only by the spouse deriving gross income)

Taxpayers may also claim an Additional Exemption of P25,000 for each qualified dependents, up to four (4) dependents.
How is income tax payable computed?
The formula to compute the income tax payable is:

Gross Income

Less: Allowable Deductions (Itemized or Optional)

Net Income
Less: Personal & Additional Exemptions

Net Taxable Income

Applicable Tax Rate (see Tax Rate Table below)

Income Tax Due

Less: Tax Withheld

Income Tax Payable

What is the income tax rate in the Philippines?

For individuals earning purely compensation income and those engaged in business and practice of profession, the applicable tax rate table
is as follows:
Taxable

Income

Tax Rate

More than
0

But less than

P10,000

P10,000
P30,000

P30,000
P70,000

P500 + 10% of the Excess over P10,000

P2,500 + 15% of the Excess over P30,000

P70,000
P140,000

P140,000
P250,000

P8,500 + 20% of the Excess over P70,000

P22,500 + 25% of the Excess over P140,000

P250,000
P500,000

P500,000

P50,000 + 30% of the Excess over P250,000

P125,000 + 32% of the Excess over P500,000 in 2000 and onward

5%

For domestic corporations, the corporate tax rate is 30% of the Net taxable income from all sources starting January 1, 2009.
For proprietary educational institutions and non-stock, non-profit hospitals, the tax rate is 10% of the Net taxable income, provided that the
gross income from unrelated trade, business or other activity does not exceed 50% of the total gross income.
For GOCCs, agencies & instrumentalities, the tax rate is 32% of the Net taxable income from all sources.
For all taxable partnerships, the tax rate is also 32% of the Net taxable income from all sources.
International Carriers are taxed 2.5% on their Gross Philippine Billings.

For Regional Operating Headquarters (ROHQ), the tax rate is 10% of Taxable Income.
- See more at: http://www.pinoymoneytalk.com/income-tax-rates-exemptions/#sthash.lXSTkqcn.dpuf