INCLUSION FROM GROSS

INCOME
GROSS INCOME (INCLUSIONS)
 GROSS INCOME (INCLUSIONS)
Section 32 (A) of the Tax Code defines gross income as follows:
Except when otherwise provided in this Title, gross income means all income
derived from whatever source, including (but not limited to) the following
items:
(1) Compensation for services in whatever form paid, including, but not
limited to fees, salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the
exercise of a profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
 GROSS INCOME (INCLUSIONS)
Section 32 (A) of the Tax Code defines gross income as follows:
Except when otherwise provided in this Title, gross income means all income
derived from whatever source, including (but not limited to) the following
items:
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of the general
professional partnership.
 CANCELLATION OR
CONDONATION OF DEBTS
Reason for Cancellation Applicable Tax
If services were rendered or if goods were Subject to basic income tax.
given by the debtor, in consideration of which
the indebtedness was cancelled by the
creditor.
If the creditor, without receiving any Subject to donor’s tax.
consideration from the debtor, and purely as
an act of liberality, cancels the indebtedness.
If the debtor is a shareholder of a corporation The cancellation constitutes indirect dividend
that cancels that indebtedness. subject to 10% final tax.
EXCLUSIONS FROM GROSS INCOME
 EXCLUSIONS FROM GROSS
INCOME
Exclusions from gross income refer to the flow of
wealth to the taxpayers which are not considered
part of gross 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 gross
income.
 TAX EXEMPTIONS
Tax exemption refers to a grant of immunity to
particular persons or corporations or to person or
corporations of a particular class from a tax which
persons and corporations generally within the same
state or taxing district are obliged to pay.
 GROUNDS FOR GRANTING TAX
EXEMPTIONS
• Based on contract, law, or treaty.
• Based on some grounds of public policy such as to
encourage direct foreign investments, encourage
new industries, or foster charitable institutions.
• Based on grounds of reciprocity or to lessen the
rigors of international double or multiple taxation
(Tax treaty).
 EXCLUSIONS VS. DEDUCTIONS
• Exclusions are not taken into account in determining
gross income.
• Deductions are subtracted from gross income.
 TAX AMNESTY
• A tax amnesty is a general pardon or intentional
overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or
violation of a revenue or tax law.
• Partakes of an absolute forgiveness or waiver by the
Government of its right to collect what otherwise
would be due to it.
 ITEMS OF INCOME OR PROCEEDS
EXCLUDED FROM GROSS INCOME
 LIFE INSURANCE
• Proceeds of life insurance policies paid to the heirs
or beneficiaries upon the death of the insured,
whether in a single sum or otherwise, are excluded
from gross income.
• 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.
 LIFE INSURANCE
Ross obtained a life insurance policy on his own life in
the amount of P5,000,000 stipulating that upon his
death, half of the proceeds will go his son while the
other half will belong to his wife.
Upon the death of Ross, his son collected his share of
P2,500,000.

Is the amount collected by the son taxable?

 LIFE INSURANCE
On the other hand, his wife agreed to claim her share
of the policy on an installment basis for an additional
10% interest. For 2023, Perla received the first
installment of the proceeds from the life insurance
amounting to P500,000 and the interest amounting to
P50,000.

How much is the taxable income of the wife?

 AMOUNT RECEIVED BY THE INSURED
AS A RETURN OF PREMIUM
• The amount received by the insured, as return of
premiums paid by him under life insurance,
endowment, or annuity contracts is not subject to
income tax.
• Any amount received by the insured in excess of the
premium returned shall be subject to income tax.
 AMOUNT RECEIVED BY THE INSURED
AS A RETURN OF PREMIUM
Ross obtained a 10-year life insurance policy on his
own life. Under the terms of the contract, the
insurance company will pay him P5,000,000 to Ross if
he outlived the policy. However, if he died on or
before the expiration of the policy, then his son will
receive P5,000,000.
 AMOUNT RECEIVED BY THE INSURED
AS A RETURN OF PREMIUM
Assume that Ross outlived the policy. Total premiums
paid for 10 years amounted to P2,000,000.

How much is the taxable income of Ross?

 AMOUNT RECEIVED BY THE INSURED
AS A RETURN OF PREMIUM
Assume that Ross died on the 5th year of the
effectivity of the life insurance policy and his son
received P5,000,000.

How much is the taxable income of his son?

 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.
 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.
 INCOME EXEMPT UNDER TREATY
Income of any kind, to the extent required by any
treaty obligation binding upon the Government of
the Philippines.
 RETIREMENT BENEFITS, PENSIONS,
GRATUITIES, ETC.
The following are excluded from gross income:
• 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.
 RETIREMENT BENEFITS, PENSIONS,
GRATUITIES, ETC.
The following are excluded from gross income:
• 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.
 RETIREMENT BENEFITS, PENSIONS,
GRATUITIES, ETC.
The following are excluded from gross income:
• 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.
 RETIREMENT BENEFITS, PENSIONS,
GRATUITIES, ETC.
The following are excluded from gross income:
• 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.
 RETIREMENT BENEFITS, PENSIONS,
GRATUITIES, ETC.
The following are excluded from gross income:
• Benefits received from or enjoyed under the Social
Security System in accordance with the provisions of
Republic Act No. 8282.
• Benefits received from the GSIS under Republic Act
No. 8291, including retirement gratuity received by
government officials and employees.
 OTHER ITEMS EXCLUDED FROM
GROSS INCOME
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
foreign governments (including financial institutions
owned, controlled, established by foreign
governments).
 OTHER ITEMS EXCLUDED FROM
GROSS INCOME
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.
 OTHER ITEMS EXCLUDED FROM
GROSS INCOME
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.
 OTHER ITEMS EXCLUDED FROM
GROSS INCOME
13th Month Pay and Other Benefits
Gross benefits received by officials and employees of
public and private entities: Provided, however, That the
total exclusion under this subparagraph shall not exceed
Ninety thousand pesos (P90,000).
 OTHER ITEMS EXCLUDED FROM
GROSS INCOME
GSIS, SSS, Medicare and Other Contributions
GSIS, SSS, Medicare and Pag-IBIG contributions, and
union dues of individuals.
 OTHER ITEMS EXCLUDED FROM
GROSS INCOME
Gains from the Sale of Bonds, Debentures or other
Certificate of Indebtedness
Gains realized from the same or exchange or retirement
of bonds, debentures or other certificate of indebtedness
with a maturity of more than five (5) years.
 OTHER ITEMS EXCLUDED FROM
GROSS INCOME
Gains from Redemption of Shares in Mutual Fund
Gains realized by the investor upon redemption of shares
of stock in a mutual fund company.
 OTHER ITEMS EXCLUDED FROM
GROSS INCOME
Income Derived from the Sale of Gold Pursuant to
Republic Act No. 7076
Income derived from the following transactions:
1) The sale of gold to the Bangko Sentral ng Pilipinas
(BSP) by registered small-scale miners; and
2) The sale of gold by registered small-scale miners to
accredited traders for eventual sale to the BSP.