Individual Income TaxationPersonal and Additional Exemptions
LECTURE No. 5
ESTELITA C. AGUIRRE, CPA, MM
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)
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.
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.
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
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
Personal Exemptions
Sec 35AFor each individual taxpayer P50,000
Sec 35BFor each qualified dependent (child) P 25,000Not to exceed 4 children)
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. Eachone is entitled to the personal exemption.
Rules on Personal exemptions
The taxpayer can claim additional exemption for children only.
Parents, siblings and other relatives who areDependents of the taxpayer are not entitled toAdditional exemption
Qualification of a Dependent Child
Sec 35B
Legitimate,illegitimate,legally adopted child must be 1. chiefly dependent upon and living with the taxpayer2. unmarried3. not gainfully employed4. not more than 21 years of age (Note: regardless of age, if incapable of self- support because of mental or physical defect)
Rules on Additional Exemptions
1. Can be claimed by only one spouse in the case of married individuals.
2. 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.
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.
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
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 residingin such country, not to exceed the amount fixedby law as exemptions for Filipinos.
Rules on PE for NRAETBP
Sec 35D
The same privilege is accorded a NRAETBP1. 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
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.