DEFINITION

Exclusion - refers to income received or

earned but is not taxable as income
because exempted by law or by treaty.
Such tax-free income is not to be
included in the income tax return unless
information regarding it is specifically
called for.
DEFINITION

Exclusion tax represents income that

taxpayers do not have to include in their
gross income when calculating income
for tax purposes.
 Difference between
deduction and exclusion

Exclusion - are not taken into account in

determining gross income.

Deduction – are subtracted from the

gross income to arrive at the net income.
The following items shall be
exempted from taxation;
1. Proceeds of life insurance
2. Amount received by insured as return of
premium
3. Gifts, bequest, and devises.
4. Compensation for injuries or sickness
5. Income exempt under treaty
6. Retirement benefits, pensions, gratuities,
etc.
7. Miscellaneous Items
EXCLUSIONS FROM GROSS INCOME

1. Proceeds of life insurance -

(life insurance policies). The proceeds paid
to 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.
EXCLUSIONS FROM GROSS INCOME

2. Amount Received by Insured as

Return of Premium – The amount received
by the insured, as a return of premium or
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 the
surrender of the contract;
EXCLUSIONS FROM GROSS INCOME

3. Gifts, bequests, and devises.

Gifts – voluntarily transfer of property from one person

to another without any consideration or compensation

Bequest – act of giving personal property, by will.

Devises - transmission of real property by virtue of a

will.
EXCLUSIONS FROM GROSS INCOME

3. Gifts, bequests, and devises. – The

value of property acquired by gift, bequest,
devise, or descent; but the income from
such property as well as gift, etc. of income
from any property, in cases of transfers of
divided interest, shall be included in gross
income.
Reason: They are subject either to estate tax
or donor’s tax.
EXCLUSIONS FROM GROSS INCOME
3. Gifts, bequests, and devises.
Gifts are subject to donor’s tax, whereas bequests
and devises are subject to estate tax.
But the income from such property is taxable. If the
taxpayer inherits securities, the value of such
securities does not constitute income but the
dividends and interest paid on such securities are
taxable.
Principal paid under a marriage settlement and
alimony or allowance based on separation
agreement are considered as gifts.
EXCLUSIONS FROM GROSS INCOME

4. Compensation for injuries or

sickness – Amounts received through
accident or health insurance or under
Workmen’s Compensation Act, as
compensation for personal injuries or
sickness, plus the amount of any damages
received whether by suit or agreement on
account of such injuries or sickness;
EXCLUSIONS FROM GROSS INCOME

5. Income exempt under treaty

– Income of any kind, to the extent
required by any treaty obligation binding
upon the government of the Philippines;
EXCLUSIONS FROM GROSS INCOME
6. Retirement benefits, pensions,
gratuities, etc.,
a.) Retirement benefit received by officials and employees
of private firms, individuals or corporations.

 Requisites for exclusions:

1. Reasonable private plan maintained by employer duly approved by
the BIR for exclusive benefit of the members-employees;
2. Retiring official or employee who has rendered at least 10 years of
service;
3. At least 50 years of age at the time of the retirement;
4. The benefit of exclusion shall be availed of only once.
EXCLUSIONS FROM GROSS INCOME
6. Retirement benefits, pensions,
gratuities, etc.,
b.) Retirement benefits paid to employees who have reached the age
of 60 or more but not beyond 65 years with at least five (5) years
of credited services.

c.) Separation benefits due to death, sickness or other physical

disability or for any cause beyond the control of the said official or
employee.

d.) Social Security benefits, retirement gratuities received by resident

or non-resident citizens or resident aliens from foreign government
agencies and other private or public institutions.

 Pensions received by retirees from foreign sources

EXCLUSIONS FROM GROSS INCOME

6. Retirement benefits, pensions, gratuities,

etc.,

e.) Benefits received from US Veterans Administration (R.A.

No. 360) by veterans residing in the Philippines.

f.) Payment of benefits under the Social Security System in

accordance with the provisions of R.A. No. 8282.

g.) Benefits received from the GSIS under R.A. No. 8291
including retirement guaranty.
EXCLUSIONS FROM GROSS INCOME
7. Miscellaneous Items
a.) Income Derived by Foreign Government
-Income derived from investments in Philippines in
loans, stocks, bonds or other domestic securities, or
from interest on deposits in banks in the Philippines.

b.) Income Derived by the Government or its Political

Subdivision
- Income derived by the Government of the Philippines
or any political subdivision from any public utility or
from the exercise of any essential governmental
function (e.g. income derived by a municipality from the
operation of a market or an electric power plant)
EXCLUSIONS FROM GROSS INCOME

7. Miscellaneous Items
c.) Prizes and awards under the following conditions

•Received in recognition of religious, charitable, scientific,

educational, artistic, literary or civic achievement.
Recipient was selected without any action on his part to
enter the contest or proceeding.
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

– prizes granted to athletes whether held in the Philippines
or abroad and sanctioned by their national sports
associations
EXCLUSIONS FROM GROSS INCOME

7. Miscellaneous Items

e.) 13th-month pay and other benefits

 Other benefits cover productivity incentives and Christmas bonus;
 Total exclusion shall not exceed P90,000.00

f.) GSIS, SSS, Medicare and other contributions.

g.) Gains from the Sale of Bonds, Debentures or other

Certificate of Indebtedness – Gains from exchange or
retirement of bonds, debentures, or other certificate of
indebtedness with a maturity or more than five (5) years.
EXCLUSIONS FROM GROSS INCOME

7. Miscellaneous Items

h.) Gains from redemption of shares in

Mutual Fund Company.

- Gains realized by the investor upon

redemption of shares of stock in a mutual fund
company.
Thank You! 