Lumentigar, Joenna Mae G.
BSE 3 – DC
1. Pedro’s Compensation Income Tax
Pedro’s total income falls under pure compensation income, and based on
the TRAIN Law, taxable income and the corresponding tax rates are
calculated as follows:
- ₱250,000.00 and below: Exempt from income tax
- For income above ₱250,000 but up to ₱800,000, the tax is 20% of the
amount exceeding ₱250,000.
- For income over ₱800,000 but up to ₱2,000,000, the tax is ₱130,000 plus
25% of the excess over ₱800,000.
- For income over ₱2,000,000, the tax is ₱490,000 plus 30% of the excess
over ₱2,000,000.
Calculations:
a. ₱200,000.00
Exempt from income tax.
b. ₱250,000.00
Exempt from income tax.
c. ₱800,000.00
Taxable income = ₱800,000 - ₱250,000 = ₱550,000
Tax = 20% of ₱550,000 = ₱110,000
d. ₱2,800,000.00
Taxable income exceeding ₱800,000:
(₱2,800,000 - ₱800,000) = ₱2,000,000
Tax = ₱130,000 + 25% of ₱2,000,000 = ₱130,000 + ₱500,000 = ₱630,000
So, for Pedro’s cases:
- (a) ₱200,000 → ₱0
- (b) ₱250,000 → ₱0
- © ₱800,000 → ₱110,000
- (d) ₱2,800,000 → ₱630,000
2. Juan’s Business Income (Graduated Rates)
Juan’s net taxable income is derived from his business:
Gross sales = ₱2,800,000.00
Cost of sales = ₱1,200,000.00
Operating expenses = ₱650,000.00
Net income = ₱2,800,000 - ₱1,200,000 - ₱650,000 = ₱950,000
Using the graduated income tax rate:
- For ₱950,000 (exceeds ₱800,000 but less than ₱2,000,000):
Tax = ₱130,000 + 25% of (₱950,000 - ₱800,000) = ₱130,000 + ₱37,500 =
₱167,500
Less: Creditable withholding taxes = ₱80,000
Income tax payable = ₱167,500 - ₱80,000 = ₱87,500
3. Juan’s Business Income (8% Tax Rate)
Juan’s taxable income = Gross sales less ₱250,000
Taxable income = ₱2,800,000 - ₱250,000 = ₱2,550,000
8% income tax = ₱2,550,000 × 8% = ₱204,000
Less: Creditable withholding taxes = ₱80,000
Income tax payable = ₱204,000 - ₱80,000 = ₱124,000
4. Juan’s Business and Rental Income (Graduated Rates)
Juan’s net taxable income is calculated as:
Gross sales = ₱2,800,000.00
Cost of sales = ₱1,200,000.00
Operating expenses = ₱650,000.00
Rental income (net of CWT) = ₱380,000.00
Net business income = ₱2,800,000 - ₱1,200,000 - ₱650,000 = ₱950,000
Total taxable income = ₱950,000 + ₱380,000 = ₱1,330,000
For ₱1,330,000 (exceeds ₱800,000 but less than ₱2,000,000):
Tax = ₱130,000 + 25% of (₱1,330,000 - ₱800,000) = ₱130,000 + ₱132,500
= ₱262,500
Less: Creditable withholding taxes = ₱80,000
Income tax payable = ₱262,500 - ₱80,000 = ₱182,500
5. Can Juan Choose the 8% Tax Rate? (Business + Rental Income)
No, Juan cannot opt for the 8% tax rate. The 8% tax rate applies only if total
income does not exceed ₱3,000,000 and does not include mixed income (i.e.,
business and other sources like rental).
6. Ana’s Professional Income (Graduated Rates)
Gross sales = ₱4,000,000.00
Cost of sales = ₱1,800,000.00
Operating expenses = ₱825,000.00
Net income = ₱4,000,000 - ₱1,800,000 - ₱825,000 = ₱1,375,000
For ₱1,375,000 (exceeds ₱800,000 but less than ₱2,000,000):
Tax = ₱130,000 + 25% of (₱1,375,000 - ₱800,000) = ₱130,000 + ₱143,750
= ₱273,750
7. Can Ana Opt for 8% Tax Rate?
No, Ana cannot opt for the 8% income tax rate because her gross sales
exceed ₱3,000,000, which is the threshold under the 8% tax option.
8. Lorna’s Mixed Income (Graduated Rates)
Compensation income = ₱1,400,000.00
Gross sales = ₱2,800,000.00
Cost of sales = ₱1,200,000.00
Operating expenses = ₱650,000.00
Compensation tax:
For ₱1,400,000 (exceeds ₱800,000 but less than ₱2,000,000):
Tax = ₱130,000 + 25% of (₱1,400,000 - ₱800,000) = ₱130,000 + ₱150,000
= ₱280,000
Less: Withholding tax = ₱310,000
Compensation income tax payable = ₱0 (Overpaid by ₱30,000)
Business income:
Net business income = ₱2,800,000 - ₱1,200,000 - ₱650,000 = ₱950,000
Tax for ₱950,000 = ₱130,000 + 25% of (₱950,000 - ₱800,000) = ₱130,000 +
₱37,500 = ₱167,500
Less: Creditable withholding taxes = ₱80,000
Business income tax payable = ₱167,500 - ₱80,000 = ₱87,500
Total income tax payable = ₱87,500 - ₱30,000 (overpaid compensation tax)
= ₱57,500
9. Can Lorna Opt for 8% Tax Rate?
No, Lorna cannot opt for the 8% tax rate because she has mixed income
(compensation and business income). The 8% tax option is available only for
those with business or professional income up to ₱3,000,000, without
compensation.
