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.

Income Taxation

End of presentation . . .

estelitaaguirre@yahoo.com