Personal Exemptions for Income Tax in the Philippines

Update: Under the TRAIN law, personal exemptions are no longer considered in computing for personal income tax as it updated the income tax-exempt threshold to PhP250,000.00. Please be guided accordingly.

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

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 in**@ta************.org.)

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