FABM2 Q2 Mod13
FABM2 Q2 Mod13
Fundamentals of Accountancy,
Business and Management 2
Module 13:
Computation of Gross Taxable
Income and Tax Due
AIRs - LM
LU_FABM 2_Module 13
FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
Module 13: Computation of Gross Taxable Income and Tax Due
Second Edition, 2021
Copyright © 2021
La Union Schools Division
Region I
All rights reserved. No part of this module may be reproduced in any form without written
permission from the copyright owners.
Management Team:
LU_FABM 2_Module 13
Senior High School
Fundamentals of Accountancy,
Business and Management 2
Module 13:
Computation of Gross Taxable
Income and Tax Due
LU_FABM 2_Module 13
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear learners,
can continue your studies and learn while at home. Activities, questions, directions,
exercises, and discussions are carefully stated for you to understand each lesson.
Each SLM is composed of different parts. Each part shall guide you step-by-
step as you discover and understand the lesson prepared for you.
In addition to the material in the main text, Notes to the Teacher are also
provided to our facilitators and parents for strategies and reminders on how they can
best help you on your home-based learning.
Please use this module with care. Do not put unnecessary marks on any part
of this SLM. Use a separate sheet of paper in answering the exercises and tests. And
read the instructions carefully before performing each task.
If you have any questions in using this SLM or any difficulty in answering the
tasks in this module, do not hesitate to consult your teacher or facilitator.
Thank you.
LU_FABM 2_Module 13
Target
In your previous lesson, you have learned about income and business taxation
and its principles and processes.
In this module, you will be provided with information and activities that will
help you understand taxable income and tax due of individual taxpayers, both citizen
and resident alien, only.
After going through this module, you are expected to learn the following
objectives:
Learning Competency:
1. Explain the procedure in the computation of gross taxable income and tax due
(ABM_FABM12- IIh-j-17)
Subtask:
Before going on, check how much you know about this topic.
Answer the pretest in a separate sheet of paper.
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LU_FABM 2_Module 13
Pretest:
Direction: Read carefully each item. Write only letter of the best answer for each test
item. Use capital letter only.
NIRC Tax Code SEC. 31. Taxable Income Defined. -The term ‘taxable income
means the pertinent items of gross income specified in NIRC Tax Code, less the
deductions, if any, authorized for such types of income by this Code or other special
laws. In formula:
To compute for the tax due, the rate of tax based from RA 10963 Section 5
(Section 24 of NIRC Tax Code) shall be applied. The amount computed using the
table below is actually called “income tax”. Since it is the income tax due to be paid
in the current taxable quarter or year, it is called tax due.
- 250,000 - -
The schedule shows that if the taxable income is zero (0) but not over two
hundred fifty thousand pesos (250,000), the basic amount of tax is zero (0) and the
additional rate of tax of the excess over the taxable income is also zero, which means
that annual taxable income below P250,000 are exempt from paying personal income
tax. The excess from the range of exemption (0-250,000) is taxable (See example
below).
Example:
Mr. Mythical Glory receives annual taxable income of P260,000.
Solution:
Applying the rates, we have;
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LU_FABM 2_Module 13
1. What term defined by NIRC Tax Code, under Sec. 31, which means the
pertinent items of gross income less the deductions, if any, authorized for
such type of income?
2. Which item is NOT included in the “Exclusions from gross income” for the
computation of taxable income which are treated as deductions?
A. Union dues.
B. De minimis benefits
C. 13th month pay in excess of Php90,000 threshold.
D. Employee’s share in the SSS, GSIS, PHIC, and contributions
5. A taxpayer whose gross sales does not exceed the VAT Threshold:
Statement I: Financial Statement (FS) is required to be attached in filing the
final income tax.
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LU_FABM 2_Module 13
In question 6-10 read the scenario given below. Answer the questions that follows.
Mr. BSO, is an employee of GOLD Inc. He is not engaged in business nor has
any other source of income other than his employment. For 2019, Mr. CSO earned a
total compensation income of Php 156,000.00 inclusive of his contribution to SSS
6,480, PhilHealth 3,960, and HDMF amount to Php1,200.00 and 13th month pay of
Php12,000.00. Mr. CSO earned, aside from his basic wage, additional pay of
Php140,000.00.
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LU_FABM 2_Module 13
Jumpstart
Direction. Read carefully the given scenario. Compute for the following in a separate
sheet of paper:
Ms. Layla is employed in EPIC Corporation and is also a part-time real estate
agent of a real estate broker. In 2019, last year, she received the following:
In addition to the Php300,000 she received from her employer, she likewise
received Php65,000 as commissions from her real estate dealings for the year 2019.
Computation:
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LU_FABM 2_Module 13
Discover
Section 32 (A) of the NIRC enumerates the items that are part of
gross income, called “INCLUSIONS”, hence taxable. Section 32 (B)
specifically identified the sources of income which are exempted by the tax
code called, “EXCLUSIONS”. Exclusions from gross income are actually
income which form part of the gross income but not taxable, hence,
deducted from gross income to determine the taxable income only.
Incidentally, Allowable deductions enumerated in Section 34 of the NIRC
are also deductions from gross income, unlike exclusions from gross
income, these deductions are expenses in nature.
II. Exclusions from Gross Income. - The following items shall not be included in
gross income and shall be exempt from taxation. (refer to NIRC Section 32 (B) for
a detailed explanation.
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LU_FABM 2_Module 13
These are the allowable deductions enumerated in Chapter 7 Section 34 of the
NIRC which are actually the operating expenses presented in the statement of
comprehensive income.
A. Expenses
B. Interest
C. Taxes
D. Losses
E. Bad Debts
F. Depreciation
G. Depletion of Oil and Gas Wells and Mines
H. Charitable and Other Contributions
I. Research and Development
J. Pension Trusts
K. Additional Requirements for Deductibility of Certain Payment
L. Optional Standard Deduction (OSD)
Source: “Tax Code,” Bureau of Internal Revenue, last accessed August 23, 2021,
https://www.bir.gov.ph/index.php/tax-code.html
In addition to the Php360,000 she received from her employer, she likewise
received Php60,000 as commissions from selling RTWs.
• The 13th month pay of 30, 000 received by Ms. Trish is an exclusion from gross
income under miscellaneous items. It is therefore a deduction from gross
income, “Include” for the purpose of computing the gross income, but “exclude”
to arrive at the taxable income.
• The mandatory contributions are also exclusions from gross income under
miscellaneous items, namely; SSS, Pag-IBIG and PhilHealth in the amount of
10,800, 1,200, and 8,100 respectively.
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LU_FABM 2_Module 13
IV. Explain the procedure in the computation of gross taxable income
and tax due.
Example:
Miss Ash, is an employee of PUBG Inc. She is not engaged in business nor
has any other source of income other than her employment. For 2019, Ms. Ash
earned a total compensation income of Php285,000.00. Her mandatory
contributions composed of SSS, PhilHealth and PAG-IBIG are Php10,800,
Php9,975 and Php1,200 respectively for a total amount of Php21,975 and has
received 13th month pay of Php23,750.00.
Computation:
Source: “Tax Code,” Bureau of Internal Revenue, last accessed August 23, 2021,
https://www.bir.gov.ph/index.php/tax-code.html
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LU_FABM 2_Module 13
Example:
Mr. Bruno is a married individual employed in Mythical Glory
Company. His wife Layla is also employed in the same company. Their
corresponding income and deductions are listed below. What is their taxable
income and tax due? Can they file a joint income tax return?
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LU_FABM 2_Module 13
❖ The Car worth Php800,000 won in a raffle draw should be divided equally
between the spouses since it could not be identified as income exclusively
earned or realized by either of the spouses.
Example:
Mr. CSO, a minimum wage earner, works for C.O.D. Inc. He is not engaged in
business nor has any other source of income other than his employment. For
2018, Mr. CSO earned a total compensation income of P 135,000.00. His
mandatory contribution to SSS 518, PhilHealth 197, and HDMF 100, are 518,
197 100 respectively for a total amount to Php9,780.00 and has received 13th
month pay of Php11,250.00. The following year, Mr. CSO earned, aside from his
basic wage, additional pay of Php140,000.00 which consists of the overtime pay-
Php80,000.00, night shift differential- Php30,000'00, hazard pay-Php15.000.00.
and holiday pay- Phpl5,000.00.
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LU_FABM 2_Module 13
D. Self-employed and/ or Professional (RA 10963. Section 5. Section
24 of the NIRC, as amended)
Individuals earning income purely from self-employment and/or practice
of profession whose gross sales or receipts and other non-operating income does
not exceed the value-added tax (VAT) threshold as provided under Section 109
(BB) of the Tax Code, as amended, shall have the option to avail of:
1. The graduated rates under Section 24(A)(2)(a) of the Tax Code, as
amended; OR
2. An eight percent (8%) tax on gross sales or receipts and other nonoperating
income in excess of two hundred fifty thousand pesos (Php250,000.00).
Source: “Tax Code,” Bureau of Internal Revenue, last accessed August 23, 2021,
https://www.bir.gov.ph/index.php/tax-code.html
Illustration 1; Ms. BBQ operates a convenience store while she offers bookkeeping
services to her clients. In 2018, her gross sales amounted to Php800,000.00, in
addition to her receipts from bookkeeping services of Php300,000.00. She already
signified her intention to be taxed at 8% income tax rate in her 1st quarter return.
Her income tax liability for the year will be computed as follows:
❖ The total of gross sales and gross receipts is below the VAT threshold of
Php3,000,000.00,
❖ Taxpayer's source of income is purely from self-employment, thus she is
entitled to the amount allowed as deduction of Php250,000.00 under Sec.
24(A)2)(b) of the Tax Code, as amended.
❖ Income tax imposed herein is based on the total of gross sales and gross
receipts.
❖ Income tax payment is in lieu of the graduated income tax rates under
subsection (A) hereof and percentage tax due, by express provision of law.
1. The compensation income shall be subject to the tax rates prescribed under
Section 24(A)(2)(a) of the Tax Code, as amended; and
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LU_FABM 2_Module 13
2. The income from business or practice of profession shall be subject to the
following:
a. If the gross sales/receipts and other non-operating income do not exceed the
VAT threshold, the individual has the option to be taxed at:
a.1 Graduated income tax rates prescribed under Section 24(A)(2)(a)
of the Tax Code, as amended; OR
a.2 Eight percent (8%) income tax rate based on gross sales/receipts
and other non-operating income.
The provision under Section 24(A)(2)(a) of the Tax Code, as amended, which
allows an option of 8% income tax rate on gross sales/receipts and other non-
operating income in excess of Php250,000 is available only to purely self-employed
individuals and/or professionals. The Php250,000.00 mentioned is not applicable to
mixed income earners since it is already incorporated in the first tier of the graduated
income tax rates applicable to compensation income. Under the said graduated rates,
the excess of the Php250,000.00 over the actual taxable compensation income is not
deductible against the taxable income from business/practice of profession under
the 8% income tax rate option.
(1) tax due from compensation, computed using the graduated income tax
rates;
Mixed income earner who opted to be taxed under the graduated income tax
rates for income from business/practice of profession' shall combine the taxable
income from both compensation and business/practice of profession in computing
for the total taxable income and consequently, the income tax due
Source: “Tax Code,” Bureau of Internal Revenue, last accessed August 23, 2021,
https://www.bir.gov.ph/index.php/tax-code.html
Example:
Mr. MAG, a financial comptroller of JAB Company, earned annual
compensation in 2018 of Phpl,500,000.00, inclusive of 13th month and other
benefits in the amount of Php120,000.00 but net of mandatory contributions to SSS,
PhilHealth and PAG-IBIG. Aside from employment income, he owns a convenience
store, with gross sales of P2,400,000. His cost of sales and operating expenses are
Php1,000,000.00 and Php600,000,00, respectively, and with non-operating income
of Php100,000.00.
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LU_FABM 2_Module 13
I. His tax due for 2018 shall be computed as follows if he opted (he chose) to
be taxed at eight percent (8%) income tax rate on his gross sales for his income
from business:
Total compensation income Php 1,500,000
Less: Non-taxable 13th month pay and other benefits (maximum) 90,000
Taxable Compensation Income Php l,410,000
Tax due:
1. On Compensation:
On P800,000. Php 130,000
On excess (Php1,410,000-Php800,000) x 30% 183,000
Tax due on Compensation Income Php 313,000
2. On Business Income:
Gross Sales Php 2,400,000
Add: Non-operating Income 100,000
Taxable Business Income Php 2,500,000
Multiplied by income tax rate 8%
Tax Due on Business Income Php 200,000
Total Income Tax Due (Compensation and Business) Php 513,000
❖ The option of 8% income tax rate is applicable only to taxpayer's income from
business. and the same is in lieu of the income tax under the graduated income
tax rates and the percentage tax under Section 1 16 of the Tax Code, as amended.
❖ The amount of Php250,000.00 allowed as deduction under the law for taxpayers
earning solely from self-employment/practice of profession' is not applicable for
mixed income earner under the 8o% income tax rate option.
II. His tax due for 2018 shall be computed as follows if he did not opt
(did not choose) for the eight percent (8%) income tax based on gross
sales/receipts and other non- operating income.
A. The tax payer choose the itemized deduction as provided by Section 11 of RA
10963 (Train Law).
Total compensation income Php 1,500,000
Less.: Non-taxable 13th month Pay and other benefits-max 90,000
Taxable Compensation Income Php 1,410,000
Add: Taxable Income from Business –
Gross Sales Php 2,400,000
Less: Cost of Sales 1,000,000
Gross Income Php 1,400,000
Less: Operating Expenses 600,000
Net Income from Operation Php 800,000 900,000
Total Taxable Income Php 2,310,000
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LU_FABM 2_Module 13
Tax Due:
On P 2000,000 490,000
On excess (P 2,310,000 – 2,000,000) x 32% 92,200
Total Income Tax Php 589,200
❖ The taxable income from both compensation and business shall be combined for
purposes of computing the income tax due if the taxpayer chose to be subject
under the graduated income tax rates.
❖ In addition to the income tax, Mr. MAG is likewise liable to pay percentage tax of
Php72,000.00, which is 3% of Php2,400,000.
B. The Tax payer choose the Optional Standard Deduction (OSD) as provided by
Section 11 of RA 10963 (Train Law) which states, “In lieu of the deductions
allowed under the preceding Subsections, an individual subject to tax under
Section 24, other than a nonresident alien, may elect a standard deduction in an
amount not exceeding forty percent (40%) of his gross sales or gross receipts, as
the case may be.”
Total compensation income Php 1,500,000
Less.: Non-taxable 13th month Pay and other benefits-max 90,000
Taxable Compensation Income Php 1,410,000
Add: Taxable Income from Business –
Gross Sales Php 2,400,000
Less: 40% of Gross Sales (OSD) 960,000 Php 1,440,000
Tax Due
On Php 2,000,000 490,000
On excess (Php 2,850,000 – 2,000,000) x 32% 272,200
Total Income Tax Php 762,200
❖ Notice the big difference of tax due if the taxpayer chose the Optional Standard
Deduction in lieu of the itemized deductions.
❖ The 40% OSD is computed directly to gross sales and operating expense of
Php600,000 is disregarded.
❖ If the taxpayer select the OSD, it shall be irrevocable for the taxable year for
which the return is made: Provided, That an individual who is entitled to and
claimed for the optional standard deduction shall not be required to submit
with his tax return such financial statements otherwise required under this
Code.
Source: “Revenue Regulations No. 8-2018,” Bureau of Internal Revenue, last
accessed August 23,2021,
https://www.bir.gov.ph/images/bir_files/internal_communications_1/
Full
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LU_FABM 2_Module 13
Explore
Here are some enrichment activities for you to work on to master and
strengthen the basic concepts you have learned from this lesson.
Direction: Read the problem of a taxpayer earning income both from compensation
and from self-employment.
Activity I: The Taxpayer chose the eight percent (8%) income tax rate. Use the format
below
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LU_FABM 2_Module 13
Activity 2: The taxpayer did opt to be taxed at 8% (chose the graduated income tax.)
Use the format below.
Tax Due:
On Php800,000 _______
On excess (Php__________ – Php____________) x 30% ______
Total Income Tax Php___________
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LU_FABM 2_Module 13
Deepen
Direction: Read and analyze the tax problem given below. Gather your knowledge
about the “VAT Threshold” and the limitation of the 13 th month pay.
Apply what you have learned in the given activity. Enjoy!
Activity 1:
Mr. WBV, an officer of AMBS International Corp., earned in 2018 an annual
compensation of Php1,200,000.00, inclusive of 13th month and other benefits in the
amount of Php120,000.00. Aside from employment income, he owns a farm, with
gross sales of Php3,500,000. His cost of sales and operating expenses are
Php1,000,000.00 and Php600,000.00, respectively, and with non-operating income
of Php100.000.00.
Tax Due:
On Compensation:
On Php__________ ________
On excess______________________________ Php ________
On Business Income:
Gross Sales Php ________
Add: Non-operating Income ________
Taxable Business Income ________
Multiply by income tax rate
Tax Due on Business Income ________
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LU_FABM 2_Module 13
Rubric for Individual Work (Problem Solving)
0 1 2 3 4
CRITERI No Emergent Developing Capable Strong
A Response
Off topic
Response No Limited Basic Complete
does not unders- understand- understand- understanding of
UNDERS- fit the tanding ding of the ding of the the problem –
TANDING given of the problem- problem- Identifies all
problem/ problem Identifies a Identifies all elements of
task few elements elements of problem and
of the problem problem and gives correct
and may give gives correct answer
incorrect answer
answer
Computa- Computation Computation All computation
Did not tion is is generally is generally is complete and
COMPU- identify incorrect incorrect correct and correct
TATION the and/or complete but
correct incomplete may contain
values minor flaws
Totally Disorganized Organized Organized
incorrect thinking with thinking thinking using
ORGANI- No attempt unclear or using at least multiple
ZATION Attempt to non-existent one representations
represent representation representa-
thinking tion
Totally Unclear or Understan- Thorough and
incorrect incomplete dable concise
EXPLA- Unable to written/ written/verbal written/ written/verbal
NATION be read verbal explanation verbal explanation
explana- explanation
tion
No Inappropriate At least one At least one
evidence strategy is appropriate appropriate
STRATE- No of shown or strategy is strategy is
GIES Attempt strategies explained shown or completely
shown explained shown or
with possible explained.
minor flaws
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Congratulations! You’ve gone this far. Now let us try your progress. Good luck!!!
Posttest:
Direction: Read carefully each item. Write only letter of the best answer for each test
item. Use capital letter only.
1. What term defined by NIRC Tax Code, under Sec. 31, which means the
pertinent items of gross income less the deductions, if any, authorized for
such type of income?
A. Gross Income B. Net Income C. Taxable Income D. Tax Due
2. Which item is NOT included in the “Exclusions from gross income” for the
computation of taxable income which are treated as deductions?
A. Union dues.
B. De minimis benefits
C. 13th month pay in excess of Php90,000 threshold.
D. Employee’s share in the SSS, GSIS, PHIC, and contributions
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Commission on Higher Education. (2016). Teaching Guide for Senior High School in
Fundamentals of Accountancy, Business and Management (pp. 78-99).
Diliman, Quezon City.
Website:
2. Income tax exemption of minimum wage earners. Retrieved July 28, 2020
https://taxacctgcenter.ph/income-taxation-of-employee-compensation-
iphilippines/
4. Implementing Rules and Regulations of the TRAIN Law. Retrieved July 29,
2020 https://www.bir.gov.ph/index.php/revenue issuances/revenue-
regulations/2018-revenue-regulations.html
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