DRILL 3-1
INCOME EXCLUDED FROM GROSS INCOME
1. Non-Taxable Compensation Income– this refers to the earnings that are
compensation in nature but which the law specifically excludes as part of the
gross income for taxation purposes.
These non-taxable compensation incomes are: compensation income including
holiday pay, overtime pay, night shift differential pay and hazard pay earned by
minimum wage earner, who has no other reportable income. Another is compensation
income and/or business income earned outside the Philippines by a Filipino Overseas
Contract Worker, nonresident Filipino Citizen, and resident alien and foreign
corporation. 13th month pay and other benefits not exceeding 8,000 per year, De
Minimis Benefits within the prescribed ceiling, compensation received under
employer’s convenient benefit rule, proceeds of the life insurance policies, amounts
received through accident or health insurance, retirement benefits and many more.
2. Non-Taxable Other Receipts (Proceeds Of Life Insurance)
Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of
the insured, whether in a single sum or otherwise. But if such amounts are held by the
insurer under an agreement to pay interest, the interest payments shall be included in
gross income.
It means that the proceeds coming from life insurance, it will be exempted when it
will be paying to the heirs or beneficiary upon the death of insured. For example,
someone availed of an insurance policy and then later on he/she died. The proceeds
coming from that life insurance will be given to the heirs or to those beneficiaries such
as young children or his partner that will be accepted as part of the gross income of
those receivers since it came from the life insurance. And when we say life insurance,
it is the security or protection against loss and our loss here is the life of the insurer.
So once he died, the life insurance policy will pay certain amount to the
heirs/beneficiaries and therefore that will be exempted.
3. Amount Received As A Return Of Premium
When the insured person outlived the life insurance policy and subsequently
received the life insurance proceeds, the proceeds received is taxable to the extent of
the excess of premium paid. It is a type of term life insurance and it is a policy that
lasts as set of period of time and then expires. Unlike other forms of term life insurance,
however return of premium offers opportunity to receive your money back at the end
of the term.
✓ For example, Mr. Jackson entered a policy and then later on, in that insurance
policy, it indicates that if in case he outlive the policy, he will receive out of the
insurance policy. In the return of his premium or the return of capital, it will be
exempted to the gross income however, the excess of the premium.
4. Gifts, Bequest And Devises
▪ Gifts (donation during the lifetime of both the donor and done) Donor’s
Tax.
▪ Bequests (gifts of personal property upon the death of the donor) Estate
Tax.
▪ Devices (gifts of real property upon the death of the donor) Estate Tax.
Gross income does not include the value of property acquired by gift, bequests,
devise or inheritance.
It means if you receive a gift, that gift will be excluded in the gross income
however, when that gift has an income out of it, it will be taxable or it will be part of
