Chapter 8: RIT-Exclusions from Gross Income
True or False 1 (Red is False)
1. The proceeds of life insurance received by the heirs of the insured upon his is excluded in gross
income.
2. The amount received in excess of the premium paid in an insurance constitutes an item of gross
income.
3. Donated income is included in the gross income of the donee.
4. Compensation for injuries and sickness constitutes profit; hence, an inclusion in gross income.
5. It is sufficient that the employee rendered more than 10 years of service for his retirement benefit
to be exempt.
6. An employee can secure retirement benefit exemption only once in a lifetime.
7. It is a must that the employer maintains a reasonable pension benefit plan for the retirement benefit
to be exempt.
8. An employee must have rendered more than 10 years of service before claiming exemption for his
termination benefits.
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 P 90 000.
1.
2.
3.
4.
5.
6.
7.
8.
9.
True or False 2
GSIS and SSS benefits are included in gross income to the extent they exceed
prizes awarded upon the condition that the recipient shall render specified future services is an
item of gross income.
prizes from contests are included in gross income subject to regular income tax.
The income of government-owned and controlled corporations is an item of gross income.
Benefits of veterans of war or retired US army personnel are excluded in gross income.
The employer's share to SSS, PhilHealth and Pag-lbig contributions are an exclusion in gross
income.
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.
The interest income from any bond or debentures, short-term or long-term, is an item of gross
income.
Cooperatives that transact business only with members will, in no case, be subject to income tax.
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 to be exempt.
Multiple Choice - Theory 1
1. 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
c. Both statements
b. Statement 2
d. Neither statement
2. 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
3. Which is not a feature of regular income tax?
a.
It generally applies to all items of gross income not subject to final tay
b.
Creditable withholding tax
c.
Gross income tax
d.
Accounting period
4. 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.
5. Deductions from gross income are
a.
Personal expenses
b.
Business expenses
c.
Either A or B
d.
Neither A nor B
6. Which of the following statement best distinguishes deductions from exclusions from gross
income?
a.
Deductions can be claimed by citizens while P250,000 income exemption harbo
cannot be claimed by aliens.
b.
Deductions are outflows from gross incomes while exclusions are not outflows
from gross income
c.
Both deductions and exclusions are deducted from gross income.
d.
All of these
7. Progressive income tax does not apply to a
a.
a. Non-resident alien.
b.
b. resident alien.
c.
c. non-resident citizen.
d.
d. resident citizen.
8. 8. Proportional income tax does not apply to a
a.
a. Domestic corporation
b.
b. Resident foreign corporation
c.
C. Business partnership
d.
General professional partnership
9. Which is not included under the term "corporation"?
a.
a. Business partnership
b.
b. Co-ownership
c.
c. Non-profit charitable institution
d.
d. Joint venture
10. The highest marginal tax rate for individual income taxpayers is
a.
a.25%
b.
b. 30%
c.
c. 35%
d.
d.32%
11. Which corporate taxpayer is not subject to regular income tax?
a.
a. Non-resident foreign corporation
b.
b. Domestic corporation
c.
c. Resident foreign corporation
d.
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 P 250,000 annual income exemption.
15. Which constitute 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. The proceeds of an insurance policy received by the corporation as beneficiary on the life insurance
of its officer is
a. a gift
c. an inheritance.
b. a taxable income.
d. exempt from income tax.
2. Mr. Buguey was insured in a life insurance with his daughter, Ybon, as the irrevocable beneficiary.
a.
b.
c.
d.
Ybon was paid the entire proceeds when Mr. Buguey died. The proceeds constitute
a taxable inheritance.
a taxable gift.
a taxable income.
an exclusion from gross income.
3' A policy holder 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. d. None of these
4. The assignment of an insurance policy at an amount in excess of the paid on the policy is subject
toc. estate tax. a. donor's tax.
a.
Donor’s tax
b.
Income tax
c.
Estate tax
d.
any of these
5.
a.
b.
c.
d.
A widow who collected the life insurance proceeds of her decease husband is
exempt to the entire amount of the proceeds.
taxable to the excess of the proceeds over the premiums paid by the husband
taxable to the excess of the proceeds over the premiums paid by the
exempt with respect to the portion of the proceeds representing returns of
6. The policyholder of a life insurance contract outlived his insurance policy. He was paid
P300,OOO upon maturity of the policy. He paid P250,OOO total premium. What is the inclusion
in gross income?
a. P300,OOO
c. P50,OOO
b. P250,OOO
d. PO
7.
a.
b.
c.
d.
Which of the following is subject to tax?
Proceeds of crop insurance
Proceeds of livestock insurance
Indemnity under patent infringement suit
All of these
8.
a.
b.
c.
d.
Which is not a requisite of exemption of a retirement benefit plan?
10 years of employment
The employer maintains a reasonable pension benefit plan.
The retiree must be a senior citizen.
First time availment of retirement exemption
9. Termination benefits are exempt from income tax provided that the reason for termination is
a.
b.
beyond the employee's control.
within the employer's control.
c. within the employee s control.
d. beyond the employer's control.
10.
a.
b.
c.
d.
Which is not an item of exclusion from gross income?
SSS benefits
Income of the government and its political subdivisions
Income of government-owned and controlled corporations
Income of foreign governments
11. Which of the following government-owned and controlled corporations is subject
a.
b.
c.
d.
Social Security System
National Development Corporation
Philippine Charity Sweepstakes Office
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 c. Income earned between related parties
b. Advanced income
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 - Problem: Part 1
1. Mr. Bisligo collected the P 1,000,000 insurance proceeds of Mr. Pantukan which he bought from
the latter for P400,000. Before the death of Mr. Pantukan, Mr. Bisligo paid total premiums of
P200,000. Determine respectively the exclusion in gross income and the inclusion in gross income.
a
c. P400,OOO; P600,OOO
b
d. P600,OOO; P400,OOO
2. Mr. Kabacan surrendered his life insurance policy and received a cash surrender value of
after contributing P700,000 in annual premiums. Determine respectively the total exclusion in
gross income and the inclusion in gross income.
P800,OOO; PO
c. PIOO,OOO; P700,OOO
PO; P800,OOO
d. P700,OOO; PIOO,OOO
3.
Mr. Tarragoza died. His heirs collected the P2,000,000 proceeds of his life insurance
policy. Mr. Tarragoza previously paid a total payment of P500,000 in Premiums. Determine
respectively the exclusion in gross income and the inclusion in gross income.
c. P700,000;P100,000
4. Mr. Malalag collected the P5,000,000 fire insurance proceeds of his buildir was destroyed by
fire. The building had a tax basis of P4,500,00 occurrence of the fire. Determine respectively the
total exclusion in gross ir and the inclusion in gross income.
a. P5,000,000; PO
b. PO; P5,000,000
c. P4,500,000; P500,000
d. P500,000; P4,500,000
5. Mr. Cateel insured his crops for a P1,000,000 insurance cover against calamitice He paid and
expensed P100,000 insurance premium. How much will be inclus in gross income?
a. P900,000
b. P1,000,000
c. P100,000
d. Po
6. Ms. Sindangan received a condominium including its accrued income as inheritance from her
deceased grandfather on April 1, 2014. The following data relates to the property:
Fair value of property in P 125,000,000
Rent income earned before death of decedent 4,000,000
ent income earned after death of decedent 6,000,000
Interest on deposits of rentals (40% accruing after death) 100,000
How much of the above income will be included in the gross income of Mr. Sindangan and in
the gross income of the decedent?
a. P6,040,000; P4,060,000
c. P4,060,000; P6,040,000 19b. P6,000,000; P4,000,000
d. P4,000,000; P6,000,000
7. Mr. Dimataling was hurt in a bus accident. He received a total indemnity of P800,000 from the
insurer of the bus. Mr. Dimataling paid P250,000 in hospital bills due to the accident. Compute
the total amount to be excluded in gross income.
a. PO
c. P550,000 90000999
b. P250,000
d. P800,000
8. At the age of 54, Mrs. Sindangan was awarded a retirement gratuity of P2.000.000 for her 30
years of service in the Sirawai Company. The employer's retirement benefit plan was with an
employee participation feature where Mrs. Sindangan contributed a total premium of P800,000
in the fund. Mrs. Sindangan also received P500,000 benefit from the SSS. Compute the total
exclusion in gross income.
a. P1,700,000 no
b. P1,300,000
c. P800,000
d. P2,500,000
9. Mrs. Candoni retired from the government after 30 years of service at the age of
55. He received a total retirement pay of P1,800,000 plus P400,000 GSIS benefits. How much will
be excluded in gross income?
a. PO
c. P2,200,000
b. P400,OOO
d. P1,800,000
10. The Professional Regulations Commission collected a total sum of from professional license fees.
It also collected government properties. What is the total exclusion in gross income?
d. P100,000,000
11. Mr. Alvarez had the following income during the year:
Gross compensation income including P25,000
13th month pay P 325,000
Less: Tardiness or absences 10.000)
Net compensation income
SSS deductions
PhilHealth deductions 9,000
Pag-lbig deductions 10,000
Union dues
Withholding tax
40.000
Net pay
p 239,000
Compute the total exclusions from gross income.
a. P36,OOO
c. P66,OOO
b. P61,OOO
d. P71,OOO
P 315,000
12,000
5,000
12. Mr. Henares received the following during the year:
Donated properties
Income of donated property before donation
Income of donated property after donation
Inherited properties
How much is taxable to Mr. Henares?
a. P380,OOO
b, P80,OOO
P 200,000
50,000
30,000
100,000
c. P30,OOO
13. Mr. Tacurong has the following data during the year: Basic salary
Income tax withheld 50,000
13th month pay
100,000
sss
2,000
PhilHealth
1,800
Pa -Ibig
1,700
Compute the total exemptions and exclusions from gross income:
c. P 96,000
a. P 106,000
d. P 88,000
b. P 100,000
d. P50,OOO
14. Mang Antonio collected P200,000 from the fire insurance company that his building which had a
tax basis of PI ,800,000 when the fire occurred.
the same period, he also collected P300,000 crop insurance proceeds pertainirgto his crops
destroyed by frost. The total item of gross income is
c. P300,OOO.
b. P200,OOO.
d. P500,OOO.
Multiple Choice - Problems: Part 2
1. Wary of his deteriorating health conditions, Mr. Benigno resigned from his j)b at age 40 after
working as a supervisor for 12 years. He was paid P2,000,000 as separation pay. Is the P2,000,000
separation pay subject to income tax?
a. No, because the reason for Mr. Benigno's termination was beyond his control.
b. Yes, because Mr. Benigno resigned.
c. No, because Mr. Benigno worked for the company for more than 10 years.
d. Yes, because Mr. Benigno is not yet 50 years old.
2. On December 25, 2014, Mr. Reynon was terminated by his employer at age 60 due to his failing
eyesight. He joined the company in February 2006 and has since then worked as treasurer of the
company. Is Mr. Reynon's retirement 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.
3. Ms. Henson 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. was paid P2,000,000 total retirement
pay from the employer's contributory pension plan which was duly registered with the BIR. Out
of the total proceeds, Ms. Henson contributed P600,000. This was Ms. Henson's first retirement
employment. How much is excluded from gross income?
a. P600,OOO
4. Assuming Ms. Henson transferred to another company and was retired after years of service. The
second employer paid P 1,500,000 out of its non-contributory
pension fund as retirement pay to Ms. Henson. The pension fund was also registered with the BIR.
Is the second retirement pay exempt from income tax?
a. No, because this is the second time Ms. Henson retired from employment.
b. Yes, because Ms. Henson is already a senior citizen.
c. Yes, because this is the first time Ms. Henson qualifies for retirement pay exemption.
d. No, because an employee must work under one employer until retirement to qualify for
retirement exemption.
5. Mr. Baracho won P 500,000 in a local that was sanctioned by a chess competition sports organization
that is currently applying for accreditation from the national sports association. Is the P500,000 prize
considered an item of gross income?
a.
b.
c.
d.
Yes, because all prizes are subject to income tax.
No, because the chess competition is not an international competition.
No, because the sport competition is a local competition.
Yes, because the organizer is not an accredited sports organization.
6. Mr. Sibuco 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 2015. 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 PIO,OOO.
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.
7. The following relates to the compensation income of Ms. Lamitan in 2017:
Compensation
Contributions to SSS, PhilHealth, and HDMF:
Mandatory contributions
125,000
150,000
Voluntary contributions
120,000
Contribution to PERA
190,000
Creditable withholding taxes
105,000
Employer's share in SSS, PhilHealth and HDMF
What is the total exclusion in gross income?
a.P225,OOO
c. P395,OOO
b P230,OOO
d. P465,OOO
8. In 2014, Ms. Kabacan invested in the 10-year bonds of Mining Corporation. She disposed the
investment in 2016 for a total considerati0h of P8,500,000 inclusive of the P400,000 accrued
interest, What are respectively the a. inclusion P500,OOO; in POgross income c. and P400,OOO;
the exclusion PIOO,OOO in gross income?
c. P400,000;P100,000
9. Ms. Sibuco 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 P98.00. She pulled
out her investment when the net asset value per unit was PIOI.OO. Ms. Sibuco also had
PIOO,OOO accrued interest in her savings deposit.
Which statement is incorrect?
a.
b.
c.
d.
The P300,000 gain is an exclusion in gross income.
The P100,000 interest income is an exclusion in gross income regular tax.
The P 100,000 interest income is an inclusion in gross income
The P300,000 is an inclusion in gross income subject but the PIOO,OOO 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
P 400,000
Dividend income - domestic
9,000
Interest on deposits
6,800
Compute the total exclusion in gross income subject to regular tax.
a. P400,OOO
c. P15,800
b. P415,800
11. In the immediately preceding problem, compute the total inclusions in gross income subject to final
tax. a. PO
c. P6,800
b. P15,800
d. P9,OOO
12. KKB, a multi-purpose credit cooperative, had the following income in 2015:
Income from related activities
Income from unrelated activities:
P 400,000
Dividends from stocks
Income from time deposits
20,000
Rent income
18,000
60,000
compute the total exclusion from gross income subject to regular tax of the cooperative.
a. P O
c. P438,OOO
b. P38,OOO
d. P400,OOO
13. In the immediately preceding problem, compute the total inclusion in gross income subject to
regular tax.
a. P60,OOO
c. P460,OOO
b. P98,OOO
d. P38,OOO
14. A non-stock, non-profit charitable entity received the following during 2015:
Contributions
from the public
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?
c.
P1,400,000
15. Mr. Santiago purchased a life annuity for PIOO,OOO which will pay him PIO,OOO a year. The
life expectancy of Mr. Santiago is 12 years. Which of the following can Mr. Santiago exclude from
his gross income?
P 10,000
b. P20,000
c. P 120,000 d. P100,000