Deductions from gross income.
Section 30
SEC. 30. Deductions from gross income. — In computing net income there shall be allowed as deduction — Expenses: (1) In general. — All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; travelling expenses while away from home in the pursuit of a trade or business, rentals or other payments required to be made as a condition to the continued use or possession, for the purposes of the trade or business, of properly to which the taxpayer has not taken or is not taking title or in which he has no equity. In the case of an individual, ordinary and necessary entertainment expenses in an amount not in excess of one thousand pesos or five per centum of gross income, whichever is lesser, shall be allowed as deduction. Claims for such ordinary and necessary entertainment expenses in an amount exceeding this allowance shall be duly supported by the corresponding vouchers and/or receipts. (2) Expenses allowable to citizens or resident individuals. — (A) Expenses incurred and paid in the Philippines during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, his spouse, or his dependents as defined in Section twenty-three (c). Definition. — For purposes of this subsection, the term "medical care expenses" means amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of diseases, or for the purpose of affecting any structure or function of the body, but excluding amounts paid for medicines. Limitation. — The deduction allowed in this subsection shall not exceed five hundred pesos for the taxpayer and an additional five hundred pesos for the spouse and each dependent as defined in Section twenty-three (c), but not to exceed two thousand pesos in the aggregate. Proof of deductions. — In connection with claims for medical care expenses deduction, the taxpayer shall furnish the name and address of each person to whom payment for medical care expenses has been made during the taxable year, as well as the amount and the dale of the actual payment thereof in each case. Claims for deductions must be substantiated by a receipt or a statement from the individual to whom or entity to which payment for medical care was paid, showing the nature of the service rendered, the amount paid therefor and the date of actual payment thereof, and such other information as the Commissioner may deem necessary. (B) Expenses incurred and paid in the Philippines .during the taxable year for basic tuition fees of taxpayer's dependents, as defined in Section twenty-three (c), who are studying in high schools. Definition. — For purposes of this subsection, the term "basic tuition fees" means amounts paid for the: privilege to receive instruction in a high school but does not include matriculation fee, and other miscellaneous fees such as library and athletic fees, laboratory fee, entrance fee, ROTC fee, student council fee, graduation fee and similar fees. Limitation. — The deduction allowed in this, subsection shall be two hundred fifty pesos for each of the taxpayer's dependents, as defined in Section twenty-three (c), who are studying in high schools but shall not exceed one thousand pesos in the aggregate. Proof of deductions. — In connection with claims for basic tuition fees deduction, the taxpayer shall furnish the name and date of birth of each dependent child who incurred the expenses riming the taxable year, as well as the amount and the date of actual payment thereof in each case. Claims for deductions must be substantiated by a receipt or statement of the school to which payment for basic tuition fees was made, showing the total school fees paid, as well as a breakdown of such fees, and such other information as the Commissioner may deem necessary. (3) Expenses allowable to nonresident alien individuals and foreign corporations. — In the case of a nonresident alien individual or a foreign corporation, the expenses deductible are the necessary expenses paid or incurred in carrying on any business or trade conducted within the Philippines exclusively. Interest: In general. — The amount of interest paid within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations the interest upon which is exempt from taxation us income under this Title. Interest allowable to nonresident aliens. — In the case of a nonresident alien individual or a foreign corporation, the amount of interest allowable is the proportion of the amount of interest paid within the year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations, the interest upon which is wholly exempt from taxation as income under this Title, which the gross amount of income for the year derived from sources within the Philippines bears to the gross amount of income derived from all sources within and without the Philippines; hut this deduction shall be allowed only if such nonresident alien individual or foreign corporation includes in the return required by this Title all the information necessary for its calculation. Taxes: In general.— Taxes paid or accrued within the taxable year, except — The income tax provided for under this Title; Income, war profits, and excess-profits taxes imposed by the authority of any foreign country; but this deduction shall be allowed in the case of a taxpayer who does not signify in his return his desire to have to any extent the benefits of paragraph (3) of this subsection (relating to credit for taxes of foreign countries); Estate, inheritance and gift taxes; and Taxes assessed against local benefits of a kind tending to increase the value of the property assessed. Limitations on deductions. — In the case of a nonresident alien individual and a foreign corporation, the deductions for taxes provided in paragraph (1) of this subsection (c) shall be allowed only if and to the extent that they are connected with income from sources within the Philippines; and In the case of a citizen of a foreign country residing in the Philippines whose income from source within such foreign country is not taxable under this Title, only first portion of the taxes paid to such foreign country which corresponds to his net income taxable under this Title shall be allowed as deduction. Credit against tax for taxes of foreign countries. — If the taxpayer signifies in his return his desire to have the benefits of this paragraph, the tax imposed by this Title shall be credited with — Citizen and domestic corporation. — In the case of a citizen of the Philippines and of a domestic corporation, the amount of any income, war-profits, and excess-profits taxes paid or accrued during the taxable year to any foreign country; Alien resident of the Philippines. — In the case of an alien resident of the Philippines, the amount of any such taxes paid or accrued during the taxable year to any foreign country, if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the Philippines residing in such country; and Partnerships and estates. — In the case of any such individual who is a member of a partnership or a beneficiary of an estate or trust, his proportionate share of such taxes of the partnership or the estate or trust paid or accrued during the taxable year to a foreign country, if his distributive share of the income of such partnership or trust is reported for taxation under this Title. Nonresident aliens and foreign corporations. — Nonresident alien individuals and foreign corporations shall not be allowed the credits against the tax for the taxes of foreign countries allowed under this paragraph. Limitations on credit. —The amount of the credit taken under this section shall be subject to each of the following limitations: The amount of the credit in respect to the tax paid or accrued to any country shall not exceed the same proportion of the tux against which such credit is taken, which the taxpayer's net income from sources within such country taxable under this Title bears to his entire net income for the same taxable year; and (B) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is Liken, which the taxpayer's net income from sources without the Philippines taxable under this Title bears to his entire net income for the same taxable year. Adjustments on payment of accrued taxes.— If accrued taxes when paid differ from the amounts claimed as credits by tin: taxpayer, or if any lax paid is refunded in whole or in part, the taxpayer shall notify the Commissioner of Internal Revenue, who shall redetermine the amount of the tax for the year or years affected, and the amount of tax due upon such determination, if any, shall be paid by the taxpayer upon notice and demand by the Commissioner, or the amount of tax overpaid, if any, shall be credited or refunded to the taxpayer. In the case of such a tax accrued but not paid, the Commissioner as a condition precedent to the allowance of this credit may require the taxpayer to give a bond with sureties satisfactory to and to be approved by the Commissioner in such sum as he may require, conditioned upon the payment by the taxpayer of any amount of tax found clue upon any such redetermination. The bond herein prescribed shall contain such further conditions as the Commissioner may require Year in which credit taken. — The credits provided for in paragraph (3) of this subsection may, at the option of the taxpayer and irrespective of the method of accounting employed in keeping his books, be taken in the year in which the taxes of the foreign country accrued, subject, however, to the conditions prescribed in paragraph five of this subsection. If the taxpayer elects to take such credits in the year in which the taxes of the foreign country accrued, the credits for all subsequent years shall be taken upon the same basis, and no portion of any such taxes shall be allowed as a deduction in the same or any succeeding year. Proof of credits. — The credits provided in paragraph (3) of this subsection shall be allowed only if the taxpayer establishes to the satisfaction of the Commissioner (1) the total amount of income derived from sources without the Philippines, (2) the amount of income derived from each country, the tax paid or accrued to which is claimed as a credit under said paragraph, such amount to be determined under rules and regulations prescribed by the Secretary of Finance, and (3) all other information necessary for the verification and computation of such credits. Taxes of foreign subsidiary. — For the purposes of this subsection a domestic corporation which owns a majority of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall be deemed to have paid the same proportion of any income, war-profits, or excess-profits taxes paid by such foreign corporation to any foreign country, upon or with respect to the accumulated profits of such foreign corporation from which such dividends were paid, which the amount of such dividends bears to the amount of such accumulated profits: Provided, That the amount of tax deemed to have been paid under this subsection shall in no case exceed the same proportion of the tax against which credit is taken which the amount of such dividends bears to the amount of the entire net income of the domestic corporation in which such dividends are included. The term "accumulated profits" when used in this subsection in reference to a foreign corporation means the amount of its gains, profits, or income in excess of the income, war-profits and excess-profits taxes imposed upon or with respect to such profits or income; and the Commissioner of Internal Revenue shall have full power to determine from the accumulated profits of what year or years such dividends were paid; treating dividends paid in the first sixty days of any year as having been paid from the accumulated profits of the preceding year or years (unless to his satisfaction shown otherwise), and in other respects treating dividends as having been paid from the most recently accumulated gains, profits, or earnings. In the case of a foreign corporation, the income, war-profits, and excess-profits taxes of which are determined on the basis of an accounting period of less than one year, the word "year" as used in this subsection shall be construed to mean such accounting period. Taxes of shareholder paid by corporation. — The deduction for taxes allowed by subsection (c) shall be allowed to a corporation in the case of taxes imposed upon a shareholder of the corporation upon his interest as shareholder which are paid by the corporation without reimbursement from the shareholder, but in such cases no deduction shall be allowed the shareholder for the amount of such taxes. Losses: (1) By individuals. — In the case of an individual, losses actually sustained during the taxable year and not compensated for by insurance or otherwise — (A) If incurred in trade or business; or (B) If incurred in any transaction entered into for profit, though not connected with the trade or business; or (C) Of properly not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from robbery, theft, or embezzlement. No loss shall be allowed as a deduction under this paragraph if at the time of the filing of the return such loss has been claimed as a deduction for estate or inheritance tax purposes in the estate or inheritance tax return (2) By corporations. — In the case of a corporation, all losses actually sustained and charged off within the taxable year and not compensated for by insurance or otherwise. (3) By nonresident aliens of foreign corporations. — In the case of a nonresident alien individual or a foreign corporation, the losses deductible are those actually sustained during the year incurred in business or trade conducted within the Philippines, and losses of property within the Philippines arising from fires, storms, shipwrecks, or other casualty, and from robbery, theft, or embezzlement, and losses actually sustained during the year in transactions entered into for profit in the Philippines although not connected with their business or trade, when such losses are not compensated for by insurance other wise. (4) Capital losses. — (A) Limitation. — Losses from sales or exchange of capital assets shall be allowed only to the extent provided in Section 34. (B) Securities becoming worthless.— If any securities as defined in Section 84 become worthless during the taxable year, and are capital assets, the loss resulting therefrom shall, for the purposes of this Title, be considered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets. (5) Losses on wash sales of stock or securities. — Losses on "wash sales" of stock or securities as provided in Section 33. (6) Wagering losses. — Losses from wagering transactions shall be allowed only to the extent of the gains from such transactions. Bad debts: (1) In general. — Debts due to the taxpayer actually ascertained to be worthless and charged off within the taxable year. (2) Bad debts deductible by nonresident aliens or foreign corporations. —In the case of a nonresident alien individual or a foreign corporation, bad debts are deductible if they have arisen in the course of business or trade conducted within the Philippines and actually ascertained to be worthless and charged off within the year. (3) Securities becoming worthless. — If any securities as defined in Section eighty-four are ascertained to be worthless and charged off within the taxable year and are capital assets, the loss resulting therefrom shall, in the ease of a taxpayer other than a bank or trust company incorporated under the laws of the Philippines a substantial part of whose business is the receipt of deposits, for the purposes of this Title, be considered as a loss from the sale or exchange, on the last day of such taxable year, of capital assets. Depreciation: (1) In general. — A reasonable allowance for deterioration of property arising out of its use or employment in the business or trade, or out of its not being used: Provided, That when the allowance authorized under this subsection shall equal the capital invested by the taxpayer or, in case of purchase made prior to March first, nineteen hundred and thirteen, the fair market value as of that dale, no further allowance shall be made. In the case of property held by one person for life with remainder to another person, the deduction shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant. In the case of property held in trust, the allowable deduction shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each. (2) Depreciation deductible by nonresident alien or foreign corporations. — In the case of a nonresident alien individual or a foreign corporation, a reasonable allowance for the deterioration of properly arising out of its use or employment or its nonuse in the business or trade shall be permitted only when such property is located within the Philippines. Depletion of oil and gas wells and mines: (1) In general. — Eased on the following percentages, there shall be a depletion allowance based on the gross income but in no case to exceed thirty-five per centum of the net income or of the net profit, whichever is lower for the calendar year 1973 and fiscal year beginning July 1, 1973 and twenty-five per centum for the calendar year 1974 and fiscal year beginning July 1, 1974: Provided, however, That the percentage depletion allowance based on gross income shall be the percentage of the gross income after an amount equal to any rents or royalties paid or incurred by the taxpayer in respect to the property has been deducted therefrom: (A) Twenty-seven and one-half per cent for oil and gas wells; (B) Twenty-three per cent for mines of (1) Chromite, copper, gold, iron, manganese, mercury, nickel, and silver, and (2) Anorthosite (to the extent that aluminum and aluminum compounds are extracted therefrom), antimony, asbestos, bauxite, beryl, bismuth, brucite, cadmium, celestite, coal, cobalt, columbium, corundum, flourspar, germanium, graphite, ilmenite, kynanite, lead, lignite, lithium, marble, mercury, mica, molybdenum, olivine, platinum and platinum group metals, quartz crystal (radio grade), rutile, talc, tantalum, thorium, tin, titanium, tungsten, uranium, vanadium, zinc, and zircon; and (C) Fifteen per cent for mines of (1) Ball, brick, china, sagger, and tile clay, bentonite, mollusks shells (including clam shells and oyster shells), peat, perlite, pumice scoria, shale, sodium chloride, and wallastonite. (2) If from brine wells-bromine, calcium chloride and magnesium chloride. (3) All other minerals including, but not limited to, aplite, barite, borax, calcium carbonates, refractory and fire clay, diatomaceous earth, dolomite, feldspar, fullers earth, garnet, gilsonite, granite, lepidolite, limestone, magnesite, magnesium carbonates, phosphate rock, potash pyrophyllite, quartzite, slate, soapstone, spodumene stone (use or sold for use by the mine owner or operator as dimension stone or ornamental stone), thenardite, tripoli, trona, and for purposes of this paragraph, the term "all other minerals" does not include — (a) Gravel, sand and stone in loose formation used in construction purposes, soil, sod, dirt, turf, water, or mosses, and (b) Minerals from sea water, the air, or similar inexhaustible sources. Beginning calendar year 1975 and fiscal year beginning July 1, 1975, depletion allowance shall be in accordance with the following: (1) In general. —(A) In the case of oil and gas wells, a reasonable allowance for actual reduction in flow and production to be ascertained not by the flush flow, but by the settled: production or regular flow;(B) In the case of mines, a reasonable allowance for depletion thereof not to exceed the market value in the mine of the product thereof, which has been mined and sold during the year for which the return and computation are made. The allowances shall be made under rules and regulations to be prescribed by the Secretary of Finance: Provided, That when the allowances shall equal the capital invested, no further allowance shall be made. (2) Depletion of oil and gas wells and mines deductible by a nonresident alien individual or foreign corporation. — in the case of a nonresident alien individual or a foreign corporation, allowance for depletion of oil and gas wells or mines under paragraph (1) shall be authorized only in respect to oil and gas wells or mines located within the Philippines. Charitable and other contributions. — Contributions or gifts actually paid or made within the taxable year to or for the use of the Government of the Philippines or any political subdivision thereof for exclusively public purposes, or to domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, athletic, cultural, or educational purposes or for the rehabilitation of veterans, or to societies for the prevention of cruelty to children or animals, no part of the net income of which inures to the benefit of any private stockholder or individual to an amount not in excess of six per centum in the case of an individual, and three per centum in the case of a corporation, of the taxpayer's taxable net income as computed without the benefit of this paragraph. Notwithstanding the foregoing, the following donations shall be deductible in full and shall not be included for purposes of computing the maximum amount deductible under the preceding paragraph: Any donation made to any school, college or university recognized by the Government either for general or special purposes: Provided, That said donation is not for payment or granting of a salary increase, bonus, or personal benefits to any or all of the school officials, faculty, and. personnel in case of a public school or to any of its stockholders, school officials, faculty, and personnel in case of private schools. Donations to the Artesian Well Fund as provided in Republic Act Numbered Nine hundred seventy-seven. Donations to the International Rice Research Institute as provided in Republic Act Numbered Two thousand seven hundred seven. Donations to the National Science Development Board and its agencies and to public or recognized private educational institutions, and scientific and research foundations, as provided in Republic Act Numbered Three thousand five hundred eighty-nine. Donations to the Ramon Magsaysay Award Foundation, as provided in Republic Act Numbered Three thousand six hundred seventy-six. Donations to the University of the Philippines and other stale colleges and universities subject to the same limitations in paragraph one above. Donations to the Philippine Rural Reconstruction Movement. Donations lo the Catholic Relief Services-NCWC, and the Tools for Freedom Foundation as provided in Republic Act Numbered Four thousand four hundred eighty-one. Donations lo the Cultural Center of the Philippines. Donations to the Philippine Amateur Athletic Federation. Donations to the Trustees of the Press Foundation of Asia, Inc. Donations to the National Commission on Culture. Donations to the Humanitarian Science Foundation. Donations to Roxas Education and Welfare Committee, Inc. The provisions of existing special laws to the contrary notwithstanding, all other contributions or donations shall be subject to the limitations provided in the first paragraph of this subsection. Such contribution or gifts shall he allowable as deductions only if verified under rules and regulations prescribed by the Secretary of Finance. Conditions under which a nonresident alien individual may receive benefit of deductions. — A nonresident alien individual shall receive the benefit of the deductions provided for in this section only by filing or causing to be filed with the Commissioner of Internal Revenue a true and accurate return of his total income, received from all sources, corporate or otherwise, in the Philippines, in the manner prescribed by this Code; and in case of his failure to file such return the Commissioner of Internal Revenue shall collect the lax on such income. Pension trusts. — General rule. — An employer establishing or maintaining a pension trust to provide for the payment of reasonable pensions to his employees shall be allowed as a deduction (in addition to the contributions to such trusts during the taxable year to cover the pension liability accruing during the year, allowed as a deduction under subsection (a) of this section) a reasonable amount transferred or paid into such trust during the taxable year in excess of such contributions, but only if such amount (1) has not theretofore been allowable as a deduction, and (2) is apportioned in equal parts over a period of ten consecutive years beginning with the year in which the transfer or payment is made. Optional standard deduction. — In lieu of the deductions allowed under this section an individual, other than a non-resident alien, may elect a standard deduction. Such optional standard deduction shall be in the amount of five thousand pesos or in an amount equal to ten per centum of his gross income, whichever is the lesser. Unless the taxpayer signifies in his return his intention lo elect the optional standard deduction, he shall be considered as having availed himself of the deductions allowed in the preceding subsection. The Secretary of Finance shall prescribe the manner of the election. Such election when made in the return shall be irrevocable for the taxable year for which the return is made. (1) Standard deduction for working wife. — If the gross income reported in the return filed by the taxpayer includes that received by his wife, a standard deduction of ten per cent of the gross income received by his wife but not exceeding P500 shall be allowed as deduction from their combined gross income, regardless of whether the taxpayer uses the itemized deductions under subsections (a) to (j), or the optional standard deduction under subsection (k), of this section.