Group 2 Exclusion From Gross Income

DEFINITION
Exclusion - refers to income received or

earned but is not taxable as income
because exempted by law or by treaty.
Such tax-free income is not to be
included in the income tax return unless
information regarding it is specifically
called for.
DEFINITION
Exclusion tax represents income that

taxpayers do not have to include in their
gross income when calculating income
for tax purposes.
Difference between
deduction and exclusion
Exclusion - are not taken into account in

determining gross income.
Deduction – are subtracted from the

gross income to arrive at the net income.
The following items shall be
exempted from taxation;
1. Proceeds of life insurance
2. Amount received by insured as return of
premium
3. Gifts, bequest, and devises.
4. Compensation for injuries or sickness
5. Income exempt under treaty
6. Retirement benefits, pensions, gratuities,
etc.
7. Miscellaneous Items
EXCLUSIONS FROM GROSS INCOME
1. Proceeds of life insurance -

(life insurance policies). The proceeds paid
to 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.
Reason: They are considered more

as an indemnity rather than as gains or
profits. The contract insurance is a contract
of indemnity.
Exception: Interest payments shall be

included in gross income if such amount is
held by the insurer under the agreement to
pay interest thereon.
However, proceeds of life insurance where the

beneficiary is revocable is subject to estate tax.
The exclusion from income taxation applies
regardless of who the beneficiary is, whether a
family member, or other individual, corporation
or partnership.
Transfer of insurance contract – amount

excludible should only be the amount or value of
actual consideration paid and the premiums paid
later by the transferee.
Where the consideration and premiums paid

exceed the proceeds, no amount is includible in
the gross income of the transferee.
2. Amount Received by Insured as

Return of Premium – The amount received
by the insured, as a return of premium or
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 the
surrender of the contract;
2. Amount received by insured as return

of premium.
Reason: The return of premium amounts to

a return of capital.
Exception: Interest payments shall be

included in gross income if such amount is
held by the insurer under the agreement to
pay interest thereon.
3. Gifts, bequests, and devises.
Gifts – voluntarily transfer of property from one person

to another without any consideration or compensation
Bequest – act of giving personal property, by will.
Devises - transmission of real property by virtue of a

will.
3. Gifts, bequests, and devises. – The

value of property acquired by gift, bequest,
devise, or descent; but the income from
such property as well as gift, etc. of income
from any property, in cases of transfers of
divided interest, shall be included in gross
income.
Reason: They are subject either to estate tax
or donor’s tax.
3. Gifts, bequests, and devises.
 Gifts are subject to donor’s tax, whereas bequests
and devises are subject to estate tax.
 But the income from such property is taxable. If
the taxpayer inherits securities, the value of such
securities does not constitute income but the
dividends and interest paid on such securities are
taxable.
 Principal paid under a marriage settlement and
alimony or allowance based on separation
agreement are considered as gifts.
4. Compensation for injuries or

sickness – Amounts received through
accident or health insurance or under
Workmen’s Compensation Act, as
compensation for personal injuries or
sickness, plus the amount of any damages
received whether by suit or agreement on
account of such injuries or sickness;
4. Compensation for injuries or sickness

Reason: Payment for such, adds nothing to the
individual, for the very concept which sanctions it,
prohibits that it shall include a profit. In other
words, any damage rendered is compensatory,
being payment for the injuries or sickness
sustained. The statutory exemption extends to
amounts received as moral damages for personal
injuries which are non-physical in character like
alienation of affection, defamation or libel, and
breach of promise to marry.
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 benefit received by officials and employees
of private firms, individuals or corporations.
 Requisites for exclusions:

1. Reasonable private plan maintained by employer duly approved by
the BIR for exclusive benefit of the members-employees;
2. Retiring official or employee who has rendered at least 10 years of
service;
3. At least 50 years of age at the time of the retirement;
4. The benefit of exclusion shall be availed of only once.
6. Retirement benefits, pensions,
gratuities, etc.,
b.) Retirement benefits paid to employees who have reached the age
of 60 or more but not beyond 65 years with at least five (5) years of
credited services.
c.) Separation benefits due to death, sickness or other physical

disability or for any cause beyond the control of the said official or
employee.
d.) Social Security benefits, retirement gratuities received by resident

or non-resident citizens or resident aliens from foreign government
agencies and other private or public institutions.
 Pensions received by retirees from foreign sources

6. Retirement benefits, pensions, gratuities,

etc.,
e.) Benefits received from US Veterans Administration (R.A.

No. 360) by veterans residing in the Philippines.
f.) Payment of benefits under the Social Security System in

accordance with the provisions of R.A. No. 8282.
g.) Benefits received from the GSIS under R.A. No. 8291
including retirement guaranty.
a.) Income Derived by Foreign Government
Reason: To lessen the burden of foreign loans inasmuch as the
interest of these loans are, by contractual arrangement, borne by
the domestic borrowers. Foreign governments include financing
institutions owned, controlled and financed by them and
international or regional financing institutions established by
governments.
b.) Income Derived by the Government or its Political

Subdivision
- Income derived by the Government of the Philippines or
any political subdivision from any public utility or from the
exercise of any essential governmental function (e.g. income
derived by a municipality from the operation of a market or
an electric power plant)
c.) Prizes and awards under the following conditions
• Received in recognition of religious, charitable, scientific,

educational, artistic, literary or civic achievement.
 Recipient was selected without any action on his part to enter
the contest or proceeding.
 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

– prizes granted to athletes whether held in the Philippines
or abroad and sanctioned by their national sports
associations (1996, 2011 Bar).
e.) 13th-month pay and other benefits

 Other benefits cover productivity incentives and Christmas bonus;
 Total exclusion shall not exceed P90,000.00
f.) GSIS, SSS, Medicare and other contributions.
g.) Gains from the Sale of Bonds, Debentures or other

Certificate of Indebtedness – Gains from exchange or
retirement of bonds, debentures, or other certificate of
indebtedness with a maturity or more than five (5) years.
h.) Gains from redemption of shares in

Mutual Fund Company.
- Gains realized by the investor upon

redemption of shares of stock in a mutual fund
company.
Thank You! 

Group 2 Exclusion From Gross Income

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DEFINITION

Exclusion - refers to income received or

Exclusion tax represents income that

Exclusion - are not taken into account in

Deduction – are subtracted from the

1. Proceeds of life insurance -

1. Proceeds of life insurance

Reason: They are considered more

Exception: Interest payments shall be

1. Proceeds of life insurance

However, proceeds of life insurance where the

1. Proceeds of life insurance

Transfer of insurance contract – amount

Where the consideration and premiums paid

2. Amount Received by Insured as

2. Amount received by insured as return

Reason: The return of premium amounts to

Exception: Interest payments shall be

3. Gifts, bequests, and devises.

Gifts – voluntarily transfer of property from one person

Bequest – act of giving personal property, by will.

Devises - transmission of real property by virtue of a

3. Gifts, bequests, and devises. – The

4. Compensation for injuries or

4. Compensation for injuries or sickness

5. Income exempt under treaty

 Requisites for exclusions:

c.) Separation benefits due to death, sickness or other physical

d.) Social Security benefits, retirement gratuities received by resident

 Pensions received by retirees from foreign sources

6. Retirement benefits, pensions, gratuities,

e.) Benefits received from US Veterans Administration (R.A.

f.) Payment of benefits under the Social Security System in

b.) Income Derived by the Government or its Political

• Received in recognition of religious, charitable, scientific,

d. Prizes and Awards in Sports Competition

e.) 13th-month pay and other benefits

f.) GSIS, SSS, Medicare and other contributions.

g.) Gains from the Sale of Bonds, Debentures or other

h.) Gains from redemption of shares in

- Gains realized by the investor upon

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