Who are the Individuals Exempted from filing Income Tax Return?

The following individuals are not required to file an income tax return (ITR) in accordance with Sec. 51 (A) (2) of the National Internal Revenue Code (“NIRC” or “Tax Code”):

a. Those whose Gross Income does not exceed their Total Exemptions

If an individual whose gross income does not exceed his personal and additional exemptions for dependents under Sec. 35 of the Tax Code, then that individual is exempt from filing an ITR. The basic personal tax exemption is Php50,000 for each individual tax payer and additional exemption for up to four dependents at Php25,000 each. Thus if an individual with three dependents has a gross income of Php100,000, then he will be exempted because his exemption of Php50,000 + (Php25,000 x 3) = Php125,000 exceeds his gross income.

However, a citizen of the Philippines and any alien (foreigner) individual engaged in business or practice of profession within the Philippines shall file an ITR, regardless of the amount of gross income. Thus, using the same example above, if an architect who has three dependents grossed only Php100,000 (maybe because he got sick), even if his personal and additional exemption of Php125,000 is more than his gross income of Php100,000, he will still be required to file an ITR because of this provision.

b. Those earning Pure Compensation Income

An individual who is earning pure compensation income as defined in Sec. 32 (A)(1), derived from sources within the Philippines, the income tax has been correctly withheld under the provisions of Sec. 79 of the Tax Code, that is to say, being withheld by the employer and correctly remitted to the BIR, is also exempt from filing an ITR. For example, if a call center employee of Convergys, whose only source of income is his salary from the said company and this company is remitting to BIR his taxes, then this call center employee will no longer be required to file an ITR.

However, an individual who is receiving income from two or more employers during the taxable year shall file an ITR. It does not matter whether those companies are properly remitting his taxes, as long as he is working for more than one employer, then he will be required to file an ITR.

c. Those whose Sole Income has been subjected to Final Withholding Tax

These are the individuals whose only income are subjected to the FWT such as interest on bank deposits and sale of real estate. They are similarly exempted from filing an ITR, but only if these are their only source/s of income.

d. Minimum Wage Earners

Minimum wage earners as defined under Sec. 22 (HH) of the Tax Code or an individual who is exempt from income tax pursuant to other laws whether it be general or special, shall likewise be exempted. Sec. 22 (HH) defines a minimum wage earner as a worker in the private sector paid the statutory minimum wage or to an employee in the public sector with a compensation income of not more than the statutory minimum wage in the non-agricultural sector where he is assigned.

Image Source: PhilStar.com

Author: Atty. James Biron
Atty. James S. Biron is a corporate lawyer specializing in foreign investments, trade, mergers and acquisitions, planning and financing of projects and capital raising. Clients served include real estate, construction, energy, information technology, agriculture, education, medical and casino gaming companies.

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