MODULE

IN

INCOME TAX
NAME:

COURSE:

Prepared by: Dr. Jessie N. Diaz

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Taxation

Income tax is a tax imposed on individuals or entities ( taxpayers ) in respect of the income or profits
earned by them ) commonly called taxable income ). Income tax generally is computed as the product of
a tax rate times the taxable income. Credits of various sorts may be allowed that reduce tax.

Personal Income Tax

Income of residents in Philippines is taxed progressively up to 32%. Resident citizens are taxed on all
their net income derived from sources within and without the Philippines.

The individual income tax ( or personal income tax ) is a tax levied on the wages, salaries, dividends,
interest, and other income a person earns throughout the year. The tax is generally imposed by the
State in which the income is earned.

Income tax is defined as money the government takes out of your earnings in order to pay for
government operations and programs. Fifteen percent of your income deducted from your paycheck
and paid to the government to maintain the military and social welfare programs is an example of
income tax.

To calculate income tax, include income from all courses. Include:

1. Income from salary ( salary paid by your employer ).

2. Income from house property ( add any rental income, or include interest paid on home loan ).
3. Income from capital gains ( income from sale purchase of shares or house ).

Salary paid tax free. Tax free salary means the salary on which income tax is borne not by the
employee but the employer. Tax free salary is also taxable in the year of receipt or in the year of
earning of the salary income, whichever is earlier.

Types of Taxes

 Consumption Tax. A consumption tax is a tax n the money people spend, not the money
people earn.
 Progressive Tax.This is a tax that is higher for taxpayers with more money…

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  Regressive Tax….
 Proportional Tax…..
 VAT on Ad Valorem Tax….
 Property Tax…..
 Capital Gains Taxes….
 Inheritance / Estate Taxes….

Tax systems in the US fall into three main categories: Regressive, proportional, and progressive. Two
of these systems impact high and low income earners differently. Regressive taxes have a greater
impact on lower – income individuals than the wealthy.

By law, taxpayers must file an income tax return annually to determine their tax obligations. Income
taxes are a source of revenue for governments. They are used to fund public services. Pay government
obligations, and provide goods for citizens.

Here are seven ways Americans pay taxes

 Income taxes. Income taxes can be charged at the federal, state and local levels…
 Sales taxes. Sales taxes are in goods and services purchased….
 Excise taxes…
 Payroll taxes….
 Property taxes….
 Estate taxes…
 Gift taxes

Important direct taxes are listed below:

 Income tax. This is most important type of direct tax and almost everyone is familiar with it.
 Wealth tax….
 Property Tax / Capital Gains Tax…..
 Gift Tax / Inheritance of Estate Tax….
 Corporate Tax….
 Service Tax…
 Custom Duty….
 Excise Duty

Income tax is a direct tax that a government levies on the income of its citizens… Income does not
only mean money earned in the form of salary. It also includes income from house property, profits
from business, gains from profession ( such as bonus ), capital gains income and income from other
sources.

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The amount received a post subtracting gratuity and the employee provident fund (EPF ) from Cost to
Company * CTC ) is called as Gross Salary. In other words, Gross Salary is the amount paid before
deduction of taxes or deductions and is inclusive of bonuses, over – time pay, holiday pay etc.

Income tax is applicable to be paid by individuals, corporate, businesses, and all other establishments
that generate income… Eventhough income tax is paid every month from the monthly earnings, it is
calculated on an annual basis. The amount of income tax an individual has to pay depends on a
number of factors.

How to save Income Tax in India

1. Contribute to the National Pension System.

2. Pay Health Insurance Prtemiums…
3. Get a deduction on your rent.
4. Get a deduction on the interest on your home loan.
5. Keep some money in your savings account.
6. Contribute to calamity.

A personal line of credit is not tax deductible, and if the IRS determines that you used funds from the
line of credit for your own expenses rather than for the business deduction will not be allowed.

Money, property, or services that are received are all considered income. Certain types of income
maybe taxed. However, some may not be taxed.

It’s income that is taxed on income in which personal exemptions and deductions are taken out
including:

 Wages, salaries, tips, bonuses, vacation pay, severance pay, commissions

 Interest and dividends
 Certain types of disability payments
 Unemployment compensation
 Jury pay and election worker pay
 Strike and lockout benefits
 Bank “ gifts “ for opening or adding to accounts if more than “ nominal ‘ value.
 Cancellation of debt ( unless excludable by law or regulation )
 Alimony
 Recoveries of items deducted in previous year
 Gain from the sale of property, stocks and bonds, stock options, etc.
 Pension and annuity distributions ( amounts not contributed by taxpayer with after – tax
dollars )
 Traditional IRA distributions ( amounts deducted in prior years )
 Rental income, farm income, business income

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  Royalties
 Trust/estate income, partnership/s – corporation income
 Executor’s commissions
 Social security benefits ( above the base amount )
 Notary fees
 Most court awards or damages
 Fees or property received for services or barter income
 Prizes, awards, gambling winnings and illegal income
 Certain scholarships, fellowships and grants

What is non – taxable income ? It’s income that is not taxed under certain conditions and includes

 Gifts and most inheritance

 Life insurance proceeds
 Life insurance proceeds
 Child support
 Certain veteran’s benefits
 Dividends on Veteran’s life insurance loans

- Insurance reimbursement of medical expenses not previously deducted

- Welfare payments
- Compensatory damages for personal physical injury or physical illness.
- Workers compensation
- Some qualified pension distributions for Public Safety Officers
- Income from qualifying scholarships

Taxation is the means by which a government or the taxing authority imposes or levies a tax
on its citizens and business entities. From income tax to goods and services tax (GST ), taxation
applies to all levels.

Taxation, imposition of compulsory levies on individuals or entities by governments. Taxes

are levied in almost every country of the word, primarily to raise revenue for government
expenditures, although they serve other purposes as well.

Taxation refers to the practice of a government collecting money from its citizens to pay for
public services. Without taxation, there would be no public libraries or parks, Taxation is the
practice of collecting taxes ( money ) from citizens based on their earnings and property.

Income of residents in Philippines is taxes progressively up to 32%. Resident citizens are taxed
on all their net income derived from sources within and without the Philippines Passive
income. This income, including dividends and interest is subject to tax at 7.5 %

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 Types of Taxes:

There are two types of taxes namely, direct taxes and indirect taxes… You pay some of them
directly, like the original income tax, corporate tax, and wealth tax etc. while you pay some of
the taxes indirectly, like sales tax, service tax, and value added tax.

What are the main principles of taxation ?

 Broad application
 Broad tax usage
 Ease of compliance
 Expenditure matching
 Fairness in application
 Limited exemptions
 Low collection cost
 Understandability

The primary goal of a national tax system is to generate revenues to pay for the expenditures
of government at all levels. Because public expenditures tend to grow at least as fast as the
national product, taxes, as the main vehicle of government finance, should produce revenues
that grow correspondingly.

Taxation is a term for when a taxing authority, usually a government, levies or impose a
financial obligation on its citizens or residents. Though taxation can be a noun or verb, it is
usually referred to as an act; the resulting revenue is usually called “ taxes “.

As nouns the difference between taxation and tax is that taxation is the act of imposing taxes
and the fact of being taxed while tax is money paid to the government other than for
transaction specific goods and services.

Since rich people save more than the poor, progressive rate of taxation reduces savings
potentiality. This means low level of investment. Lower rate of investment has a dampening
effect on economic growth of a country. Thus, on the whole, taxes have the discentive effect n
the ability to work, save and invest.

Calculating Effective Tax Rate

The effective tax rate is the overall tax rate paid by the company on its earned income. The
most straight forward way to calculate effective tax rate is to divide the income tax expense
by the earnings ( or income earned ) before taxes.

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WORKSHEET:

NAME:_____________________________________________________DATE:___________

COURSE:___________________________________________________

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I. Answer the following questions.
1. How do you calculate tax ?

2. What is the difference between tax and taxation ?

3. What are the effects of tax ?

4. What is taxation in simple words ?

5. How is taxation in Philippines ?

6. What are the main principles of taxation ?

7. What are the main objectives of taxation ?

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8. What is non – taxable income ?

9. Is line of credit a tax ?

10. Taxable Income and Non-Taxable Income

11. What is taxable income ?

12. Is tax paid yearly or monthly ?

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13. What is total salary ?

14. What is income tax in simple words ?

15. Seven Ways American pay taxes ?

16. What are the types of tax ?

17. Why do we need to pay income tax ?

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18. What are 3 types of taxes ?

19. What are the 4 types of tax ?

20. How can I calculate my income tax ?

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