Bureau of Internal Revenue
Republic of the Philippines


NIRC
(National Internal Revenue Code)

 

 

 

 

National Internal Revenue Code

  Chapter V
NIRC Main

TITLE II
TAX ON INCOME
 
CHAPTER VI - COMPUTATION OF GROSS INCOME
 
SEC. 32. Gross Income. -

(A)  General Definition. - 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;
(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.
(B)  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. For purposes of this Subsection, the term 'reasonable private benefit plan' means a pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees, wherein contributions are made by such employer for the officials or employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein its is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees.

      (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 under this subparagraph shall not exceed Thirty thousand pesos (P30,000) which shall cover:
       

        (i)  Benefits received by officials and employees of the national and local government pursuant to Republic Act No. 6686;
        (ii)  Benefits received by employees pursuant to Presidential Decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986;
        (iii)  Benefits received by officials and employees not covered by Presidential decree No. 851, as amended by Memorandum Order No. 28, dated August 13, 1986; and
        (iv)  Other benefits such as productivity incentives and Christmas bonus: Provided, further, That the ceiling of Thirty thousand pesos (P30,000) may be increased through rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, after considering among others, the effect on the same of the inflation rate at the end of the taxable year.
         
      (f)  GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS, Medicare and Pag-ibig contributions, and union dues of individuals.

      (g)  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.

      (h)  Gains from Redemption of Shares in Mutual Fund. - Gains realized by the investor upon redemption of shares of stock in a mutual fund company as defined in Section 22 (BB) of this Code.
       

SEC. 33. Special Treatment of Fringe Benefit.-

(A)  Imposition of Tax.- A final tax of thirty-four percent (34%) effective January 1, 1998; thirty-three percent (33%) effective January 1, 1999; and thirty-two percent (32%) effective January 1, 2000 and thereafter, is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees as defined herein) by the employer, whether an individual or a corporation (unless the fringe benefit is required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer). The tax herein imposed is payable by the employer which tax shall be paid in the same manner as provided for under Section 57 (A) of this Code. The grossed-up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by sixty-six percent (66%) effective January 1, 1998; sixty-seven percent (67%) effective January 1, 1999; and sixty-eight percent (68%) effective January 1, 2000 and thereafter: Provided, however, That fringe benefit furnished to employees and taxable under Subsections (B), (C), (D) and (E) of Section 25 shall be taxed at the applicable rates imposed thereat: Provided, further, That the grossed -Up value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by the difference between one hundred percent (100%) and the applicable rates of income tax under Subsections (B), (C), (D), and (E) of Section 25.

(B)  Fringe Benefit defined.- For purposes of this Section, the term 'fringe benefit' means any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees as defined herein) such as, but not limited to, the following:

    (1)  Housing;
    (2)  Expense account;
    (3)  Vehicle of any kind;
    (4)  Household personnel, such as maid, driver and others;
    (5)  Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted;
    (6)  Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations;
    (7)  Expenses for foreign travel;
    (8)  Holiday and vacation expenses;
    (9)  Educational assistance to the employee or his dependents; and
    (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows.
(C)  Fringe Benefits Not Taxable. - The following fringe benefits are not taxable under this Section:
    (1)  fringe benefits which are authorized and exempted from tax under special laws;
    (2)  Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans;
    (3)  Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and
    (4)  De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.
The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner, such rules and regulations as are necessary to carry out efficiently and fairly the provisions of this Section, taking into account the peculiar nature and special need of the trade, business or profession of the employer.
 
  Chapter V
NIRC Main