As we have learned in our previous article – Overview of Business Expenses in the Philippines, certain expenses are deducted from income to arrive at the taxable net income. Any expense falling under the necessary and ordinary expense in the conduct of trade or business or practice of profession is deductible. To cover the personal, family, and living expenses of individual taxpayers, personal exemptions are put in place and come up with a reasonable taxable base for income taxation in the Philippines.
Basic personal expenses (BPE)
This is a mandatory deduction allowed to individual citizens in the Philippines regardless of the status at the amount of P50,000.00. This applies to all individual citizen taxpayers engaged in trade or business, practice of professions, and employees earning compensation income. In the computation of annual income tax for income tax return filing in the Philippines, this P50,000.00 basic personal exemption in the Philippines is deducted from gross income
Additional personal exemptions (APE)
This is a mandatory deduction of P25,000.00 for each qualified dependent child up to maximum of four (4) qualified dependent children in the Philippines or a maximum amount of P100,000.00. Hereunder are the requirements of a qualified dependent child:
To support the above exemptions, the taxpayer is required by the Bureau of Internal Revenue (BIR) to file a Certificate of Tax Exemptions or BIR Form No. 2305 with the enumeration of qualified dependent children. Every additional dependent would require filing such form.
Juan dela Cruz is employed with a taxable compensation income of P600,000. He is married with three (3) qualified dependent children. How much is his taxable income for the year? How much is his income tax due for his income tax return?
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at firstname.lastname@example.org.)
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