1. Individual Income Taxation Personal and Additional Exemptions
LECTURE No. 5
ESTELITA C. AGUIRRE, CPA, MM
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If Central Luzon, employee receiving P382 is not considered minimum wage.

2. Title II, Chapter 7, NIRC Allowable Deductions
Personal and Additional Exemptions
As amended by R.A. 9504
(effective July 6, 2008)
Allowance for Personal Exemption
(Sec 35)
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3. Definitions Personal exemption
is an arbitrary amount granted by law to individual taxpayers in general,
representing their personal, family and living expenses
or minimum subsistence for themselves and for their dependents.
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4. Definitions Dependent
a legitimate, illegitimate or legally adopted child
- chiefly dependent upon and
- living with the taxpayer
-not more than 21 years of age.
-unmarried
-not gainfully employed
-regardless of age, is incapable of
self-support because of mental or
physical defect.
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If Central Luzon, employee receiving P382 is not considered minimum wage.

5. Who are entitled to PE? 1. resident citizens 2. resident aliens
3. non-resident citizens with income in the Phil
4. non-resident aliens engaged in trade or
business in the Phil
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If Central Luzon, employee receiving P382 is not considered minimum wage.

6. Who are NOT entitled to PE?
1. special aliens with preferential rate of 15%
2. special Filipino counterpart of aliens with
with preferential rate of 15%
3. non-resident aliens not engaged in trade or
business in the Phil
Administrative nightmare for the BIR.
If Central Luzon, employee receiving P382 is not considered minimum wage.

7. Personal Exemptions Sec 35A For each individual taxpayer P50,000
Sec 35B
For each qualified dependent (child) P 25,000
Not to exceed 4 children)
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If Central Luzon, employee receiving P382 is not considered minimum wage.

8. Rules on Personal Exemptions
In the case of married individuals where only one spouse is deriving gross income, only such spouse shall be allowed the personal exemption.
If both spouses are deriving gross income. Each
one is entitled to the personal exemption.
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If Central Luzon, employee receiving P382 is not considered minimum wage.

9. Rules on Personal exemptions
The taxpayer can claim additional exemption
for children only.
Parents, siblings and other relatives who are
Dependents of the taxpayer are not entitled to
Additional exemption
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If Central Luzon, employee receiving P382 is not considered minimum wage.

10. Qualification of a Dependent Child
Sec 35B
Legitimate,illegitimate,legally adopted child must be
1. chiefly dependent upon and living with the
taxpayer
2. unmarried
3. not gainfully employed
4. not more than 21 years of age
(Note: regardless of age, if incapable of self-
support because of mental or physical defect)
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If Central Luzon, employee receiving P382 is not considered minimum wage.

11. Rules on Additional Exemptions
Can be claimed by only one spouse in the
case of married individuals.
If legally separated, can be claimed by the
spouse who was judicially awarded custody
of the child: Provided, that the total amount of
additional exemption that may be claimed by
both shall not exceed P100,000.
3. The husband has the right to claim the
additional exemption for the children or to
waive such right in favor of the wife.
Administrative nightmare for the BIR.
If Central Luzon, employee receiving P382 is not considered minimum wage.

12. Rules on Additional Exemptions
4. The wife may claim the additional exemptions
under the following situations:
a. The husband has no earnings or income.
b. The husband is non-resident citizen
earning income from outside the Phil only.
c. The husband issues a waiver in favor of the
wife.
Administrative nightmare for the BIR.
If Central Luzon, employee receiving P382 is not considered minimum wage.

13. Change of Status Rule Sec 35C
1. If a child is born during the year, full additional
exemption can be claimed by taxpayer
2. If a child becomes 21, marries or becomes gainfully employed during the year, taxpayer
can claim full additional exemption for the year
3. If the taxpayer dies during the year, his estate
may claim the personal and additional
exemption as if he died at the close of the year
Administrative nightmare for the BIR.
If Central Luzon, employee receiving P382 is not considered minimum wage.

14. PE for NRAETBP
Sec 35D
A nonresident alien individual ETBP shall be entitled
to a personal exemption in the amount equal to
the exemption allowed in the income tax law
in his country to citizens of the Phil not residing
in such country, not to exceed the amount fixed
by law as exemptions for Filipinos.
Administrative nightmare for the BIR.
If Central Luzon, employee receiving P382 is not considered minimum wage.

15. Rules on PE for NRAETBP Sec 35D
The same privilege is accorded a NRAETBP
1. NRAETB are granted PE, only if there is an
existing reciprocal agreement between the Phil and his country.
2. If the law of the country allows to Filipinos both basic and additional personal exemption for the purpose of computing income tax on income derived from the country of such NRAETBP
Administrative nightmare for the BIR.
If Central Luzon, employee receiving P382 is not considered minimum wage.

16. Rules on PE for NRAETBP Sec 35D
3. The amount of the allowed personal exemptions to consider shall be the lower amount between the personal exemption granted under the tax laws of his country and the personal exemptions granted by the tax laws of the Phil.
4. He must file a true and accurate tax return of the
total income received by him from all sources within the Phil.
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If Central Luzon, employee receiving P382 is not considered minimum wage.

17. Rules for Parents & Children
1. A Minor child who is gainfully employed shall file
his/her own return through the parents/guardian.
2. Income from donated properties by parents shall be included in the ITR of the child if donor’s tax has already been paid or if the transfer of property is exempt from donor’s tax.
3. If donor’s tax has not yet been paid, income from donated properties shall be included in income tax return of donor-parent.
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If Central Luzon, employee receiving P382 is not considered minimum wage. 17

18. Optional Standard Deduction
Section 34L
The OSD, which is in lieu of the itemized deductions
is a privilege that may be enjoyed by both
individuals and corporations.
For individuals (RC, RA, NRAEBP, NRC with income from within Phil ):
40% of his gross sales or gross receipts
For corporations (DC, RFC)
40% of its gross income as defined under Section 32
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19. Requisites of OSD
1. Unless the taxpayer signifies in his return his intention to elect OSD, he is considered as having availed of itemized deductions;
2. Such election shall be irrevocable for the taxable
year for which the return is made but he can change to itemized deduction in succeeding year/s;
3. One who claims OSD shall not be required to submit with his tax return such financial statements otherwise required by the Tax Code.
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If Central Luzon, employee receiving P382 is not considered minimum wage. 19

20. Health and/or Hospitalization
Sec 34M
Premium Payments on Health and/or
Hospitalization Insurance
can be claimed by individuals classified as an
employee, self-employed or both
can be claimed by a RC, a RA, NRC having income from within and a NRAEBP.
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21. Conditions and Limitations
1. There must be an actual Health and Hospitalization
Premium payments made during the year.
2. The amount of premium shall not exceed P2, per year taken by the taxpayer for himself and his
family.
3. Said family (husband and wife) has a gross income
of not more than P250,000
4. In case of married couple, only the spouse claiming the additional personal exemption can claim HHP.
5. If married couple has no dependent children, then the
husband shall claim unless he waives it for wife.
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If Central Luzon, employee receiving P382 is not considered minimum wage. 21

22. Compensation Gross Compensation Income
Less: Health/Hospital Insurance Premium*
Less: Personal and Additional Exemptions
Taxable Net Income
x 5 to 32%
* allowed only if gross income is not > P250,000
** OSD, not applicable
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If Central Luzon, employee receiving P382 is not considered minimum wage. 22

23. Business and Profession (Claiming OSD)
Option in lieu of itemized deduction
Gross Sales/Receipts
Less: 40% Optional Standard Deduction
Gross Income
Less: Health/Hospital Insurance Premium*
Less: Personal and Additional Exemptions
Taxable Net Income
x 5 to 32%
* allowed only if gross income is not > P250,000
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If Central Luzon, employee receiving P382 is not considered minimum wage. 23

24. Business and Profession (claiming itemized deductions)
Option in lieu of itemized deduction
Gross Sales/Receipts
Less: 40% Optional Standard Deduction
Gross Income
Less: Health/Hospital Insurance Premium*
Less: Personal and Additional Exemptions
Taxable Net Income
x 5 to 32%
* allowed only if gross income is not > P250,000
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If Central Luzon, employee receiving P382 is not considered minimum wage. 24

25. Mixed Income (Claiming OSD)
Gross Sales/Receipts
Less: 40% OSD of Gross Sales/Receipts
Gross Income
Add: Gross Compensation Income
Total Business and Compensation Income
Less: Health/Hospital Insurance Premium*
Less: Personal and Additional Exemptions
Taxable Net Income
x 5 to 32%
* allowed only if gross income is not > P250,000
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If Central Luzon, employee receiving P382 is not considered minimum wage. 25

26. Mixed Income (claiming Itemized Deductions)
Gross Sales/Receipts
Less: Cost of Sales
Gross Income
Less: Itemized allowable deductions
Net Income
Add: Gross Compensation Income
Total Business and Compensation Income
Less: Health/Hospital Insurance Premium*
Less: Personal and Additional Exemptions
Taxable Net Income
x 5 to 32%
* allowed only if gross income is not > P250,000
Administrative nightmare for the BIR.
If Central Luzon, employee receiving P382 is not considered minimum wage. 26

27. Income Taxation
End of
presentation . . .