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08
October

Personal Exemptions for Income Tax in the Philippines

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:

  • A legitimate child, legitimated, illegitimate, or legally adopted child of the taxpayer;
  • Not more than 21 years of age, unless, physically or mentally incapacitated where age will not matter;
  • Living with the taxpayer. A child who is away for a his education or vacation is still considered living with the taxpayer;
  • Dependent upon the taxpayer for chief support;
  • Not gainfully employed, even if the child is employed but the taxpayer is still supporting the child at least 51% of its living expenses.

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.

Sample computations:

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?

  • Taxable compensation income    P600,000
  • Less: Personal exemptions
  1. Basic personal exemptions             P50,000
  2. Additional personal exemptions  P75,000
  •  Equals: Taxable net income           P475,000
  • Income tax due:
  1. First 250,000 –                                                P50,000.00
  2. Excess(P475,000 – P250,000) @ 30% – P67,500.00
  • Annual income tax due –                     P117,500.00
Based on the above computations, the personal exemptions reduced the income tax liability. We suggest that you check your personal exemptions certificates and the actual exemptions claimed.

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 info@taxacctgcenter.org.)


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Comments

  1. joe says:

    All the family members are living abroad. But by blood, they are Filipinos. They are non-resident citizen. Now, the wife is earning income in the Philippines. Her income is used for their house repair, etc. in the Philippines. Her Philippine income is not used to support the needs of their kids since her husband has a good job abroad. Can she claim additional exemption to a maximum of 100,000.00? Needing answer so badly. God Bless.

    1. TaxAcctgCenter says:

      @ Joe.I would fear she is not qualified because one requirement is that the child must be “dependent upon the taxpayer for chief support” that we believe is absent in her case. Thanks.

  2. Mad says:

    Hi I need your help, I am an ESL online teacher and I have a 2307 from my employer/agency. I failed to file my ITR ever since I started in the 4th quarter of 2010. What are my penalties for this?

  3. Karen Orilla says:

    are the “Qualified dependents” replaceable in cases such as, when the “qualified dependent” reached their age of 22, became married and gainfully emplyed?

    1. TaxAcctgCenter says:

      @ Karen. Yes, the qualified younger child could replace for as long as the total additional personal exemption will not exceed four. Thanks.

  4. TaxAcctgCenter says:

    @Mad. Yes, penalties apply – 25% surcharge, 20% interest, and compromise penalties. If BIR would deem it as intentional or fraudulent, then, 50% applies instead of 25% surcharge. YOu can visit BIR office for the intended payment.

  5. Sallie Cabrera says:

    I am a Canadian citizen and I haven’t re-acquired my Philippine citizenship. I have a rental property in Manila which begun operations last January. I have downloaded Form 1701 and studying how I can pay my taxes in Manila. Please help – there is EXEMPT, SPECIAL and REGUALR RATE in page 3 of the form: what are those for? What is ‘Optional Standard Deduction (OSD)’?

    1. TaxAcctgCenter says:

      @Sallie. Without any special incentive, you fall under Regular Rate column. OSD is in lieu of itemized deductions for expenses. I suggest you seek professional assistance in doing the tax compliance, you may end up paying more penalties for some unintended mistakes. Thanks.

  6. shirlyn m. isada says:

    if a person praticing her profession as a dentist, how can she compute her annual income tax return? can she deduct her personal deduction of 50,000 other than the optional deduction?

    1. TaxAcctgCenter says:

      @Shirlyn. As a registered professional, the dentist practitioner is allowed to deduct itemized expenses related to the conduct of practice or 40% optional standard deduction. On top of that, yes, the dentist is allowed personal exemption – P50k for basic and P25k per qualified dependent child not exceeding four (4). Thanks.

  7. Rizza says:

    How do we determine the 30000 ceiling of de minimis benefits? Should we add 13th month pay, christmas bonus, clothing allowance, etc then subtract 30000?

  8. dha says:

    Hi, im a single mother with one child. Can I consider my daughter as my dependent even though her surname belongs to her father?

  9. TaxAcctgCenter says:

    @Rizza. De minimis benefits are taken individually and not by aggregate. P30,000 for 13th month pay and other benefits are separate from the de minimis benefits.

  10. TaxAcctgCenter says:

    @dha. Yes, I beleive you if you have his custody and support.

  11. anne says:

    hi. i am a singe parent supporting my kid and my unemployed parents. can i add my parents as dependents?

  12. TaxAcctgCenter says:

    @Anne. Parents are not allowed additional personal exemptions so no bearing if you add them as dependents for tax purposes. Thanks.

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