FAQs | Evangeline A. Santos, CPA, CMA

Are returnable deposits or deposits held in trust, like security deposits under lease agreements part of the definition of gross receipts?

In general, all deposits received are included in the definition of Gross Receipts under Section 2(g) of RR 8-2018. However, returnable deposits or deposits held in trust and recorded as Liability are excluded.

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What tax rates are applicable for individuals who are earning income from both compensation and self/employment (business or practice)?

Compensation income shall be subject to the graduated income tax rates under Section 24(A)(2)(a) of the Tax Code. as amended. The income from business or practice of a profession shall be subject to the graduated income tax rates or if qualified, at taxpayer’s option, be subject to the 8% income tax rate based on gross…

For filing of quarterly ITR for individuals earning purely from practice of profession who opted for 8% income tax, how can the P250,000.00 be deducted. Is it gross receipts for the quarter less P62,500 (250,000/4) equals taxable income?

There is no need to divide the amount of P250,000.00 allowed as reduction into four quarters. The said amount was considered in the design of the revised quarterly income tax return (Form 1701 Q) which reflect a cummulative quarterly computation.

Who are entitled to reduce their taxable gross sales; receipts and other non-operating income by the amount of P250,000.00 for purposes of computing the income tax due under the 8% income tax rate?

Only individual income purely from self-employment and practice of profession are entitled to the amount allowed as reduction or P 250,000.00 under Sec, 24(A)2(b) of the Tax Code, as amended, for the purpose of computing the 8% income tax. Thus, mixed income earners (earning both from compensation and business/practice of profession) shall no longer be…

What is the base amount of the 8% income tax rate?

The 8% income tax rate shall be based on the gross sales/receipts and other non operating income. net of returns and cash discounts. However. If the individual earns income purely from business or practice of profession. He/she is entitled to the reduction of P250,000 before computing for the 8% income tax.

In the case of a purely self-employed/professional individual taxpayer who opted for the 8% income tax, does he/she still need to file and pay the 3% percentage tax?

No, he/she is no longer required to file and pay 3% percentage tax. The 8% income tax rate is in lieu of the graduated income tax rates and the percentage tax under Section 116 of the Tax Code.

What is the income tax regime of a taxpayer who is otherwise qualified to avail of the 8% income tax rate but failed to signify this selection?

An individual taxpayer who is qualified to avail of 8% income tax rate but failed to signify his intention to avail of the same shall be subject to graduated income tax rates.