Discussion Questions
1. Enumerate the exclusions from gross income.
2. What capital items are considered with infinite value?
3. Enumerate the exclusion conditions of retirement benefits.
4. Discuss the exclusion condition of termination benefits.
5. Discuss the rules on taxation of prizes.
6. Enumerate the exclusions from gross compensation income in the determination of
gross taxable compensation income.
7. Who is a minimum wage earner?
8. Enumerate the benefits of minimum wage earners exempt from income tax.
9. What is a BMBE?
10.What are the exemption conditions of an employee trust fund?
True or False 1
1. An employee must have rendered more than 10 years of service before claiming
exemption for his termination benefits.
2. The proceeds of life insurance received by the heirs of the insured upon his death is
excluded in gross income.
3. The amount received in excess of the premium paid in an insurance contract
constitutes an item of gross income.
4. Donated income is included in the gross income of the donee.
5. Compensation for injuries and sickness constitutes profit; hence, an inclusion in
gross income.
6. It is sufficient that the employee rendered more than 10 years of service for his
retirement benefit to be exempt.
7. An employee can secure retirement benefit exemption only once in a lifetime.
8. It is a must that the employer maintains a reasonable pension benefit plan for the
retirement benefit to be exempt.
9. The income of the Philippine government from essential public functions is exempt
from any income tax.
10.Prizes paid to corporations are an inclusion in gross income subject to final tax.
11.Only the mandatory portion of GSIS, SSS, PhilHealth, and union dues can be
excluded in gross compensation income.
12.Social security benefits, retirement gratuities, and other benefits from foreign
governments are excluded in gross income.
13.Social security benefits, retirement gratuities, and other benefits from foreign private
entities are included in gross income.
14.The gain from redemption of shares in mutual fund is an exclusion in gross income
subject to regular tax because it is an inclusion in gross income subject to capital
gains tax.
15.13th month pay and other benefits are taxable only up to ₱90,000.
True or False 2
1. Cooperatives that transact business only with members will, in no case, be subject to
income tax.
2. GSIS and SSS benefits are included in gross income to the extent they exceed
₱90,000.
3. Prizes awarded upon the condition that the recipient shall render specified future
services is an item of gross income.
4. Prizes from contests are included in gross income subject to regular income tax.
5. The income of government-owned and controlled corporations is an item of gross
income.
6. Benefits of veterans of war or retired U.S. Army personnel are excluded in gross
income.
7. The employer's share to SSS, PhilHealth, and Pag-IBIG contributions are an
exclusion in gross income.
8. Compared to exclusion, deduction is included in the amount of gross income but both
exclusion and deductions are not reflected in the amount of taxable income.
9. The interest income from any bond or debentures, short-term or long-term, is an item
of gross income.
10.Cooperatives, regardless of their classification, are taxable on income from their
unrelated activities.
11.The gain on the sale of long-term bonds with a maturity of five years is an exclusion
in gross income.
12.A non-stock, non-profit entity is subject to tax on income from unrelated activities.
13.A general professional partnership can be registered as a BMBE.
14.Items of income subject to final tax or capital gains tax are exclusions in gross
income subject to regular income tax.
15.A BMBE must have a net asset not exceeding ₱3,000,000 to be exempt.
📘 Multiple Choice – Theory 1
1. Proportional income tax does not apply to a
a. Domestic corporation
b. Resident foreign corporation
c. Business partnership
d. General professional partnership
2. Statement 1: Items of passive income from abroad are subject to regular income tax.
Statement 2: Items of passive income from the Philippines are generally subject to
final income tax.
Which statement is generally correct?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statement
3. Which is true with the regular income tax?
a. Certain items of income are subject to final withholding tax
b. Tax is payable at regular intervals
c. Income tax returns are not required
d. All of these
4. Which is not a feature of regular income tax?
a. It generally applies to all items of gross income not subject to final tax
b. Creditable withholding tax
c. Gross income tax
d. Accounting period
5. Statement 1: Capital gains are generally subject to capital gains tax.
Statement 2: Items of passive income in the Philippines are generally subject to
regular income tax.
a. Statement 1 is true
b. Statement 2 is true
c. Both statements 1 and 2 are true
d. Neither statement 1 nor 2 is true
6. Deductions from gross income are
a. Personal expenses
b. Business expenses
c. Either A or B
d. Neither A nor B
7. Which statement best distinguishes deductions from exclusions from gross income?
a. Deductions can be claimed by citizens while ₱250,000 income exemption cannot
be claimed by aliens
b. Deductions are outflows from gross income while exclusions are not outflows from
gross income
c. Both deductions and exclusions are deducted from gross income
d. All of these
8. Progressive income tax does not apply to a
a. Non-resident alien
b. Resident alien
c. Non-resident citizen
d. Resident citizen
9. Which is not included under the term “corporation”?
a. Business partnership
b. Co-ownership
c. Non-profit charitable institution
d. Joint venture
10.The highest marginal tax rate for individual income taxpayers is
a. 25%
b. 30%
c. 35%
d. 32%
11.Which corporate taxpayer is not subject to regular income tax?
a. Non-resident foreign corporation
b. Domestic corporation
c. Resident foreign corporation
d. Business partnership
12.Which individual income taxpayer is not subject to regular tax?
a. Resident alien not engaged in trade or business
b. Non-resident citizen not engaged in trade or business
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business
13.Which is correct with respect to exclusions from gross income?
a. They are included as part of gross income but are subsequently deducted
b. They are not included in gross income but are added to the taxable income
c. They are not considered in the computation of taxable income
d. They are synonymous with deductions
14.Which is correct with respect to deductions from gross income?
a. They pertain to expenses of generating items of business or professional gross
income
b. They are excluded from the determination of taxable income
c. They include all expenses incurred in the generation of any income
d. They include ₱250,000 annual income exemption
15.Which constitutes a taxable item of gross income?
a. Compensation for personal injuries
b. Gain from sale of shares in mutual funds
c. Gain from sale of government bonds
d. Income exempt under treaty
📙 Multiple Choice – Theory 2
1. Which of the following is subject to tax?
a. Proceeds of crop insurance
b. Proceeds of livestock insurance
c. Indemnity under patent infringement suit
d. All of these
2. The proceeds of an insurance policy received by the corporation as beneficiary on
the life insurance of its officer is
a. A gift
b. A taxable income
c. An inheritance
d. Exempt from income tax
3. Mr. Buguey was insured in a life insurance with his daughter, Ybon, as the
irrevocable beneficiary. Ybon was paid the entire proceeds when Mr. Buguey died.
The proceeds constitute
a. A taxable inheritance
b. A taxable gift
c. A taxable income
d. An exclusion from gross income
4. A policyholder who outlived the policy and received a cash surrender value in excess
of premiums paid is exempt upon
a. The amount representing a return of premiums
b. The entire amount received
c. The excess of the amount received over the premiums paid
d. None of these
5. The assignment of an insurance policy at an amount in excess of the premiums paid
on the policy is subject to
a. Donor's tax
b. Income tax
c. Estate tax
d. Any of these
6. A widow who collected the life insurance proceeds of her deceased husband is
a. Exempt to the entire amount of the proceeds
b. Taxable to the excess of the proceeds over the premiums paid by the husband
c. Taxable to the excess of the proceeds over the premiums paid by the widow
d. Exempt with respect to the portion of the proceeds representing returns of
premium
7. The policyholder of a life insurance contract outlived his insurance policy. He was
paid ₱300,000 upon maturity of the policy. He paid ₱250,000 total premium. What is
the inclusion in gross income?
a. ₱300,000
b. ₱250,000
c. ₱50,000
d. ₱0
8. Which is not a requisite of exemption of a retirement benefit plan?
a. 10 years of employment
b. The employer maintains a reasonable pension benefit plan
c. The retiree must be a senior citizen
d. First time availment of retirement exemption
9. Termination benefits are exempt from income tax provided that the reason for
termination is
a. Beyond the employee’s control
b. Within the employer’s control
c. Within the employee’s control
d. Beyond the employer’s control
10.Which is not an item of exclusion from gross income?
a. SSS benefits
b. Income of the government and its political subdivisions
c. Income of government-owned and controlled corporations
d. Income of foreign governments
11.Which of the following government-owned and controlled corporations is subject to
income tax?
a. Social Security System
b. National Development Corporation
c. Local water district
d. Philippine Health Insurance Corporation
12.Which is not an acceptable ground for exemption of termination pay?
a. Mass employee lay-off
b. Closure of employer’s business
c. Grave misconduct and neglect of duty
d. Retrenchment of employer’s business
13.Which is not an item of gross income for taxation purposes?
a. Unrealized income
b. Advanced income
c. Income earned between related parties
d. All of these
14.Which is subject to income tax?
a. Gain on sale of 6-year bonds
b. Gain on sale of shares in mutual fund
c. Interest income on long-term bonds with a maturity period exceeding five years
d. Interest income on long-term deposits by individual taxpayers
15.Which of the following is not an exclusion from gross income?
a. Income of government properties
b. Income taxes collected by the Bureau of Internal Revenue
c. Dividend income payable to a foreign government
d. Social Security benefits
📘 Multiple Choice – Problems: Part 1
1. Mr. Anthony was hurt in a bus accident. He received a total indemnity of ₱800,000
from the insurer of the bus. Mr. Anthony paid ₱250,000 in hospital bills due to the
accident. Compute the total amount to be excluded in gross income.
a. ₱0
b. ₱250,000
c. ₱550,000
d. ₱800,000
2. Mr. Philip collected the ₱1,000,000 insurance proceeds of Mr. Gerald which he
bought from the latter for ₱400,000. Before the death of Mr. Gerald, Mr. Philip paid
total premiums of ₱200,000. Determine respectively the exclusion in gross income
and the inclusion in gross income.
a. ₱1,000,000; ₱0
b. ₱0; ₱1,000,000
c. ₱400,000; ₱600,000
d. ₱600,000; ₱400,000
3. Mr. Zero surrendered his life insurance policy and received a cash surrender value of
₱800,000 after contributing ₱700,000 in annual premiums. Determine respectively
the total exclusion in gross income and the inclusion in gross income.
a. ₱800,000; ₱0
b. ₱0; ₱800,000
c. ₱100,000; ₱700,000
d. ₱700,000; ₱100,000
4. Mr. Johnkaiser died. His heirs collected the ₱2,000,000 proceeds of his life insurance
policy. Mr. Johnkaiser previously paid a total payment of ₱500,000 in premiums.
Determine respectively the exclusion in gross income and the inclusion in gross
income.
a. ₱2,000,000; ₱0
b. ₱500,000; ₱1,500,000
c. ₱2,000,000; ₱0
d. ₱0; ₱2,000,000
5. Mr. Franklin collected the ₱5,000,000 fire insurance proceeds of his building which
was destroyed by fire. The building had a tax basis of ₱4,500,000 at the occurrence
of the fire. Determine respectively the total exclusion in gross income and the
inclusion in gross income.
a. ₱5,000,000; ₱0
b. ₱0; ₱5,000,000
c. ₱4,500,000; ₱500,000
d. ₱500,000; ₱4,500,000
6. Mr. Adrian insured his crops for a ₱1,000,000 insurance cover against calamities. He
paid and expensed ₱100,000 insurance premium. How much will be included in
gross income?
a. ₱900,000
b. ₱1,000,000
c. ₱100,000
d. ₱0
7. Ms. Ace received a condominium including its accrued income as inheritance from
her deceased grandfather on April 1, 2021. The following data relates to the property:
○ Fair value of property: ₱125,000,000
○ Rent income earned before death: ₱4,000,000
○ Rent income earned after death: ₱6,000,000
○ Interest on deposits (40% accruing after death): ₱100,000
How much of the above income will be included in the gross income of Ms.
Ace and in the gross income of the decedent?
a. ₱6,040,000; ₱4,060,000
b. ₱6,000,000; ₱4,000,000
c. ₱4,060,000; ₱6,040,000
d. ₱4,000,000; ₱6,000,000
8. At the age of 54, Mrs. Rio was awarded a retirement gratuity of ₱2,000,000 for her 30
years of service in the Sirawai Company. The employer’s retirement benefit plan was
with an employee participation feature where Mrs. Rio contributed a total premium of
₱800,000. She also received ₱500,000 benefit from the SSS. Compute the total
exclusion in gross income.
a. ₱1,700,000
b. ₱1,300,000
c. ₱800,000
d. ₱2,500,000
9. Mrs. Moses retired from the government after 30 years of service at the age of 55.
He received a total retirement pay of ₱1,800,000 plus ₱400,000 GSIS benefits. How
much will be excluded in gross income?
a. ₱0
b. ₱400,000
c. ₱2,200,000
d. ₱1,800,000
10.The Professional Regulation Commission collected a total sum of ₱100,000,000 from
professional license fees. It also collected ₱5,000,000 from rentals of government
properties. What is the total exclusion in gross income?
a. ₱0
b. ₱5,000,000
c. ₱100,000,000
d. ₱105,000,000
11.Mr. Alvarez had the following income during the year:
○ Gross compensation income including ₱25,000 13th month pay: ₱325,000
○ Less: Tardiness or absences: (₱10,000)
○ Net compensation income: ₱315,000
○ SSS deductions: ₱12,000
○ PhilHealth deductions: ₱9,000
○ Pag-IBIG deductions: ₱10,000
○ Union dues: ₱5,000
○ Withholding tax: ₱40,000
○ Net pay: ₱239,000
Compute the total exclusions from gross income.
a. ₱36,000
b. ₱61,000
c. ₱66,000
d. ₱71,000
12.Mr. Yap received the following during the year:
○ Donated properties: ₱200,000
○ Income of donated property before donation: ₱50,000
○ Income of donated property after donation: ₱30,000
○ Inherited properties: ₱100,000
How much is taxable to Mr. Yap?
a. ₱380,000
b. ₱80,000
c. ₱30,000
d. ₱50,000
13.Mr. Gallardo has the following data during the year:
○ Basic salary: ₱1,200,000
○ Income tax withheld: ₱50,000
○ 13th month pay: ₱100,000
○ SSS: ₱2,000
○ PhilHealth: ₱1,800
○ Pag-IBIG: ₱1,700
○ Union dues: ₱500
○ Capital build-up contribution in a social fund: ₱2,000
Compute the total exemptions and exclusions from gross income:
a. ₱106,000
b. ₱100,000
c. ₱96,000
d. ₱88,000
14.Mang Custodio collected ₱2,000,000 from the fire insurance company that insured
his building which had a tax basis of ₱1,800,000 when the fire occurred. During the
same period, he also collected ₱300,000 crop insurance proceeds pertaining to his
crops destroyed by frost. The total item of gross income is:
a. ₱2,300,000
b. ₱200,000
c. ₱300,000
d. ₱500,000
📙 Multiple Choice – Problems: Part 2
1. Mr. Ali discovered teleport technology where people can be transported over
thousand miles in seconds. Due to this, he was awarded by the scientific community
the most coveted Nobel Prize award in 2020. The total award was $150,000,000.
What is the most correct statement regarding the taxation of the award?
a. The award is an inclusion in gross income subject to regular income tax since final
taxes do not apply abroad
b. The award is an inclusion in gross income subject to final tax since it is more than
₱10,000
c. The award is an exclusion in gross income subject to regular tax since it is an
inclusion in items of gross income subject to final tax
d. The award is an exclusion in gross income
2. Wary of his deteriorating health conditions, Mr. Sidney resigned from his job at age
40 after working as a supervisor for 12 years. He was paid ₱2,000,000 as separation
pay. Is the ₱2,000,000 separation pay subject to income tax?
a. No, because the reason for Mr. Sidney’s termination was beyond his control
b. Yes, because Mr. Sidney resigned
c. No, because Mr. Sidney worked for the company for more than 10 years
d. Yes, because Mr. Sidney is not yet 50 years old
3. On December 25, 2021, Mr. Kevin Edward was terminated by his employer at age 60
due to his failing eyesight. He joined the company in February 20013 and has since
then worked as treasurer of the company. Is Mr. Kevin Edward’s separation pay
exempt from income tax?
a. Yes, because his termination was beyond his control
b. No, because he was employed for less than 10 years
c. Yes, because he is over 50 years old
d. No, because the employee is already a senior citizen
4. Ms. Paula retired from her job after 25 years of service. She joined the company at
the age of 23 and was promoted from an accounting clerk to VP Finance. She was
paid ₱2,000,000 total retirement pay from the employer’s contributory pension plan
which was duly registered with the BIR. Out of the total proceeds, Ms. Paula
contributed ₱600,000. This was Ms. Paula’s first retirement from employment. How
much is excluded from gross income?
a. ₱600,000
b. ₱1,400,000
c. ₱2,000,000
d. ₱0
5. Assuming Ms. Paula transferred to another company and was retired after 15 years
of service. The second employer paid ₱1,500,000 out of its non-contributory pension
fund as retirement pay to Ms. Paula. The pension fund was also duly registered with
the BIR. Is the second retirement pay exempt from income tax?
a. No, because this is the second time Ms. Paula retired from employment
b. Yes, because Ms. Paula is already a senior citizen
c. Yes, because this is the first time Ms. Paula qualifies for retirement pay exemption
d. No, because an employee must work under one employer until retirement to
qualify for retirement exemption
6. Mr. Eman won ₱500,000 in a local chess competition that was sanctioned by a sports
organization that is currently applying for accreditation from the national sports
association. Is the ₱500,000 prize considered an item of gross income?
a. Yes, because all prizes are subject to income tax
b. No, because the chess competition is not an international competition
c. No, because the sports competition is a local competition
d. Yes, because the organizer is not an accredited sports organization
7. The following relates to the compensation income of Ms. Jilliane in 2021:
○ Compensation: ₱2,400,000
○ Contributions to SSS, PhilHealth, and HDMF:
■ Mandatory contributions: ₱125,000
■ Voluntary contributions: ₱150,000
○ Contribution to PERA: ₱120,000
○ Creditable withholding taxes: ₱190,000
○ Employer’s share in SSS, PhilHealth, and HDMF: ₱105,000
What is the total exclusion in gross income?
a. ₱225,000
b. ₱230,000
c. ₱395,000
d. ₱465,000
8. In 2020, Ms. Rose invested ₱8,000,000 in the 10-year bonds of Compostela Mining
Corporation. She disposed the investment in 2016 for a total consideration of
₱8,500,000 inclusive of the ₱400,000 accrued interest. What are respectively the
inclusion in gross income and the exclusion in gross income?
a. ₱500,000; ₱0
b. ₱100,000; ₱400,000
c. ₱400,000; ₱100,000
d. ₱0; ₱500,000
9. Ms. Mary invested in the mutual fund and savings deposit of BCBC Bank. She
acquired a 100,000 participation shares when the net asset value per unit of the fund
was ₱98.00. She pulled out her investment when the net asset value per unit was
₱101.00. Ms. Mary also had ₱100,000 accrued interest in her savings deposit. Which
statement is incorrect?
a. The ₱300,000 gain is an exclusion in gross income
b. The ₱100,000 interest income is an exclusion in gross income subject to regular
tax
c. The ₱100,000 interest income is an inclusion in gross income subject to final tax
d. The ₱300,000 is an inclusion in gross income subject to regular tax, but the
₱100,000 is an exclusion in gross income subject to final tax
10.The following income relates to a proprietorship registered as a BMBE:
○ Gross income from sales: ₱400,000
○ Dividend income – domestic: ₱9,000
○ Interest on deposits: ₱6,800
Compute the total exclusion in gross income subject to regular tax.
a. ₱400,000
b. ₱415,800
c. ₱15,800
d. ₱0
11.In the immediately preceding problem, compute the total inclusions in gross income
subject to final tax.
a. ₱0
b. ₱15,800
c. ₱6,800
d. ₱9,000
12.Gamitan sa Bayan, a multi-purpose credit cooperative, had the following income in
2015:
○ Income from related activities: ₱400,000
○ Income from unrelated activities:
■ Dividends from stocks: ₱20,000
■ Income from time deposits: ₱18,000
■ Rent income: ₱60,000
Compute the total exclusion from gross income subject to regular tax
of the cooperative.
a. ₱0
b. ₱38,000
c. ₱438,000
d. ₱400,000
13.In the immediately preceding problem, compute the total inclusion in gross income
subject to regular tax.
a. ₱60,000
b. ₱98,000
c. ₱460,000
d. ₱38,000
14.A non-stock, non-profit charitable entity received the following during 2021:
○ Contributions from the public: ₱1,400,000
○ Income from the sale of merchandise: ₱500,000
○ Gain on the sale of properties: ₱300,000
What is the total exclusion from gross income subject to regular tax?
a. ₱2,200,000
b. ₱1,900,000
c. ₱1,400,000
d. ₱1,300,000
15.Mr. Lozada purchased a life annuity for ₱100,000 which will pay him ₱10,000 a year.
The life expectancy of Mr. Lozada is 12 years. Which of the following can Mr. Lozada
exclude from his gross income?
a. ₱10,000
b. ₱20,000
c. ₱120,000
d. ₱100,000