Income Tax Computation Under The Train Law

Income Tax Computation Under The Train Law

Income Tax Computation for Individuals Earning Income from Self-Employment or Practice of Profession

(under the Train Law)

Example: I operate a convenience store while I offer tax accounting services to my clients. In 2018, my gross sales amounted to P800,000.00, in addition to my receipts from accounting services of P300,000.00. I already signified my intention to be taxed at 8% income tax rate in my 1^st Quarter return.

My income tax liability for 2018 will be computed as follows:

Gross Sales – Convenience Store	P   800,000.00
Gross Receipts – Accounting Services	300,000.00
Total Sales/Receipts	1,100,000.00
Less: Amount allowed as deduction under Sec. 24(A)(2)(b)	250,000.00
Taxable Income	P   850,000.00
Tax Due: 8% of P850,000.00	P     68,000.00

Conditions present:

·   The total gross sales/receipts is below the VAT threshold of P3,000,000.00 (If the gross sales/receipts exceeded the VAT threshold, taxpayer shall be liable to pay income tax under the graduated income tax rate)

·    Taxpayer’s source of income is purely from self-employment (i.e. no compensation income), thus entitled to the amount allowed as deduction of P250,000.00 under Sec. 24(A)(2)(b) of the Tax Code, as amended.

·        Income tax payment is in lieu of the graduated income tax rates and percentage tax due.

If taxpayer fails to signify her intention to be taxed at 8% income tax rate,

her income tax liability under the graduated income tax rates will be

computed as follows:

Gross Sales – Convenience Store	800,000.00
Gross Receipts – Bookkeeping	300,000.00
Total Sales/Receipts	1,100,000.00
Less: Cost of Sales (for example only)	505,000.00
Gross Income	595,000.00
Less: Operating Expenses (for example only)	195,000.00
Taxable Income	400,000.00	36.36%
Income Tax Due:
On excess (P395,000 – P250,000) x 20%	30,000.00	2.73%
Percentage Tax Due: 3% of P1,100,000.00	33,000.00	3.00%
Total Taxes Due	63,000.00	5.73%