torign lacome lag Credit and 0S1D

In the case of any such individual who is a member of a general

Chaster 12 fes sional partnership or a beneficiary of an estate or trust, his

Partionate share of such taxes of the general professional partnership
prne estate or trust paid or incurred during the taxable year to a foreign
ntry,income tax credit may be availed of if his distributive share of the
cou or trust is reported for taxation.
and come of such partnership
Tax Credit
inco.

Income
Foreign Deductions (OSD) To minimize impact
of double taxation on income, the taxpayer
under the
Standard his return his desire to have the benefits of tax credit
Optional sianifies in
Tax Code.

who can avail Income Tax

Taxpayers
taxation is
Credit The principle of double
Resident citizens of the to non-resident
credit
not applicable
citizens and nonresident foreign
tax
foreign
income
corporations are taxable on.
the Philippines
Concept of domestic shal
citizens and
derived from
within and withot he Domestic corporations corporations. Therefore, they
Resident
Members of general credits for the
by them from
(income not be allowed tax
sources derived
from all tax
income
income
Consequently,
income onPhilippines may have been
professional partnerships of
taxes foreign
countries.

Philippines). outside of the Beneficiaries of estates &

trusts
sources tax in the country where such
subjected to income Nonetheless, the same
income was derived.
Tax credit refers to income tax in the
to the taxpayers income is also subject indirect double
an Requisites
resulting to allowed as
night to deduct
Philippines, hence, countries shall be
from the income
taxation. Credits for taxes paid in foreign to the
satisfaction of the
The establishes
tax due the taxpayer
of indirect
effect deduction only if the
amount of tax the adverse Commissioner the following:
To lessen of the taxpayer,
the
to foreign on the part without the
double taxation
a the
paid incurred during derived from sources

income taxes paid

or of income
country, Subject amount of The total
amount
may be availed 1.
to limitations. foreign country
taxable year to any i n c o m e tax
due.
Philippine or
from the taxpayer's Is the tax paid
as deduction tax credit each country,
from
after income of income derived amount to be
such
Income tax payable
amount
2. The credit, of
claimed as a the Secretary
computed as follows: Resident incurred to which is prescribed by
and regulations
Dornestic under rules
Citizen deterrnined
Corporation Finance, and computation
of
verification and
Pxx necessary
for the
Taxable income (within and without) Pxxx Tax be . All other
information

x Income tax rate 30% Pxxx such credits.

PxxX (XXx)
Income tax due
**

Less: Income tax credit PxX

Income tax payable PxxXx e laxdue

inconE
from the
alowed as a deduction
.heincome tax credit
fomula as presented in page
490. 481
s based on a statutory

480
lhcome lae Credit and OstD Foruign Jncone Tae Credit and OSD
Frise
for the computation of tax credit
availment nt of
of tax c
credit
r Statutory Formula
to the
Liabilities prior
the
Existence
of Tax
directly the tav
that is due Computation for
The the allowable
in
income tax credit depends on
income tax were made.
reduce countries which payment of
is
credit
used to
tax credit can be nber Of foreign
tax b e f o r e the
Since a uselessTPplied
liability will be
tax
There will country
Limit Aor Limit1=Ifthere is only one(1) foreign
to be a application
ought credit
tax
when there is, to begin
there
liability, any With, no
Without that the latter existe
deducting However, the
a tax
for
be n o
reason
govemment. i s e LIMIT versusACTUAL TAX CREDIT
to the same as
the availment or such
existing
obligation not the
N e t income,
(LIMIT A)
law is a v a i l m e n t or u s e is not.
its grant by the foreign Tax Paid
credit or
is mandatory, x Philippine Pxxx Lower Amount
the grant country in the
credit. While Tax Due
or use of a n v Net income,
the a v a i l m e n t foreign
tax liability
is essential to
for the existenx world
cOuntry
While a On the contrary,
are not.
payments a prior tax payment
neither a tax iability nor
tax
credit, prior credit, provisions grantina or
of such
grant solely fact replete with
The Tax
Code is in b e e n previously paid, For
needed. taxes
though no have a tax countries
even
Section 86(E) allows more than oneforeign
Limit Bor Limit 2-f there are
allowing tax
credits,
the estate tax due, a foreian
in computing for e s t a t e taxes paid to
example, limitations
-

donor's
to certain provision for shown above.
credit subject is a similar as
Also found in
Section 101(C)
in computing for the Step 1: Limit A Limit 1 "per foreign country" be
or
paid should
-

country. a foreign
country Compute taxes were
when paid to the prior no income
instances allude to countries where
t a x e s - again in both Foreign Limit A or L1.
The tax credits government. (CIR
v. Central purposes of
computing
donor's tax due. excluded only for
made to our
e v e n if not
of taxes,
payment 15 April 2005)
GR No. 159647,
Luzon Drug Corp., Step 2: the following formula:
for Limit B or Limit 2
using
Compute CREDIT
ACTUAL
TAX
LIMIT versus
(LIMIT B)
Limitations on Credit Net income,
following Taxes
shall be subject
to each of the All foreign Philippine Pxxx
Paid in
Lower Amount

The amount of the credit taken countries

Tax Due
Net income,
foreign
limitations:
countries
to any
incurred world
to the tax paid
or

1. The amount of the credit in respect of the tax against wihic

exceed the s a m e proportion
country shall not taxable income o the lower
amount

which the taxpayer's ror

Step 3: by choosing
SUch credit is taken,
entire taxable income u Compute the
allowed tax credit
bears to his
sOurces within such country
same taxable year, and between Limit A
and Limit B Pxxx
Pxxx
rti. of Limit A (from Step 1)
proporton 2) PxxX
exceed the s a m e Limit B (from Step amount)
2. The total amount of the credit shall not which the taxpayer. Allowed Tax Credit
(Lower
which such credit is taken,
the tax against bears to
no

taxable income from sources without

the Philippines
entire taxable income for the same taxable year.
483

482
Freipn lncome lat
redit an (o
OSD Foreigu Thcone Tae Credit and OSD
ILLUSTRATION 1:
Solution:
Taxable income, world P2,000,00
Country Only for calendar year ending
ending December 34 Tax Rate
CASEA-1Foreign 30%
calendar
data tor
lowing data
following
A taxpayer provided the TaxDue P600,000
rate of $1-50).
2018: (Assume
exchange
PhilippinesS Canada Less Tax Credit *** (300,000)
P4,000,000 $40,000 Tax paid, three quarters (110,000)
Gross Income
P2,500,000 $15,000 Income tax payable P190,000
Deductions $ 3,000
Income tax paid TAX CREDIT***

ciizen, now much should he ranad LIMIT 1:

IS a resident ot
the taxpayer
Question: Assume Canada
payable at year end? Limit: (600/2,000 x P600,000) P180,000
as income tax
Answer: P580,000 Actual 250,000
P180,000
Allowed
Solution: P1,500,000
Net income, Philippines
1,250,000 U.S.A
Net income, Canada Limit: (400/2,000 x P600,000) P120,000
income
P2,750,000 120,000
Total net taxable Actual 120,000
Law Tax Table): Allowed
Tax Due (TRAIN
First P2,000,000
P490,000
P730,000 Total L1
P300,.000
32% 240,000
Excess: P750,000 x
Less Tax Credit:
***(150,000 LIMIT 2:
P580,000 Limit: (1,000/2,000 x P600,000) 300,000
Income Tax Payable 370,000
Allowable Actual 300,000
Actual Tax Credit Allowed
Limit P300,000
P150,000 P15,000 L2)
L1:1,250/2,750 x P730,000 P331,818 TAXCREDIT ALLOWED(L1vs.
allowable
paid as part of
income taxes
foreign
CASE B-Two(2) or More Foreign Countries Option to avail
credit
had the following data for 2018
A domestic corporation P1,000,000 expenses or as
a tax who c a n
taxpayers
Taxable income, Philippines country by and
600,0 to a foreign the taxpayer
payments of
Taxable income, Canada Income tax "at the option books,
400,000
income tax credit,
may,
employed in keeping the taxes
his
Taxable income, U.S.A. 250 000 avail of foreign the method of accounting income in
the year
which
Income tax paid to Canada 120,000 of i n c o m e tax
respective from the gross credit against
a s a tax
deduction
Income tax paid to U.S.A. as a incurred or
110,000 De taken were
the year country
Philippine tax paid, three quarters of n e foreign
due.
tax credit.
Required Determine the income tax payable after
Answer: P190,000
485

484
tarciyn
lhcme Tag Cre and OSt tereige Income lae Crdt and OSD
TABLE 12-2: OPTIONAL STANDARD DEDUCTION
Taxpayer Basis
ILLUSTRATION 2: except
exc that the corporation Individuals Taxpayer is using:
"llustration #2, upled to
data in How much a. Resident citizens Accrual Basis of accounting: 40% of Gross
Assume the s a m e
income the toreign
income tax paid. HoWpaid.
much would
have | b. Nonresident citizens Sales
deduct from the gross
tax payable? C. Resident aliens Cash Basis of accounting: 40% of Gross
been the income
d. Taxable estates and Receipts
Answer: P379,000 trusts
For individuals allowed by law to report their income
or deductions under a different method of accounting
SolutionTaxable income before tax credit, world P2,000,000 (other than cash and accrual accounting such as
Taxes paid foreign
countries (as OPEX) (370,000) percentage of completion), the gross sales or receipts
P1,630,000 shall be determined in accordance with
Such
Taxable income
30% acceptable method of accounting
X 489,000
Tax Due (110,000)
3 quarters Corporations
40% of Gross Income
Less: Payments,
P379,000 a. Domestic corporations
Taxpayable
b. Resident F.Corp. 40% of Gross Income
General Partnership and
General Professional

O P T I O N A L S T A N D A R D DEDUCTIONSs Partnerships (RR2-2010)

services" are
sales" or "Cost of
Standard
Deductions (OSD) taxpayers, "Cost of
Individual basis in
Deductions vs. Optional For of determining the
temized
not allowed to
be deducted for purposes "Gross Income"
OSD 16-2008; RA9504).
(RR
allowable and a l l o w a n c e s
Itemized Deduction computing the returns, discóunts
Table 12-1: OSD vs.
ItemizedDeductions sales less sales sales
m e a n the gross include only
Optional Standard Deduction "Gross Sales" shal
shall
Applicable, in general sold. code. "Cost of
and cost of goods of the tax
under Sec 27(A)
At the option ofthe taxpayer
basis the
On a per item of
expense income taxable
contributory to price or cost to produce
In lieu of itemized deduction Incurred paid during the year include the purchase them to their
Goods Sold" shall
or
Irrevocable for the taxable year incurred in bringing
no limit as to
amount directly
Generally merchandise and all expenses
40% flat rate Substantiation requirement, in
and use.
No substantiation requirement present location
general
otherwise, he/it shall
Trade/business/professionrelated OSD:
to avail of
elected
A taxpayer who such intention, deduction.
Trade/business/profession in his/its return
the itemize
signify himself of d e d u c t i o n is
'Shall availed
related considered as having
the OSD or
itemized
box in the
deduction be election to avail of appropriate
OSD or Itemized Once the checking the it
Once the election to avail of
which
(by taxable year),
return the
for the taxable year nal in the first quarter of s a m e type
irrevocable Signified the the
signified in the return, it shall be claim Opuo tax return
filed for Meaning,
be allowed to
may lows: income the taxable
year.
for all the
succeeding
the return is made.
he following itemized deductions
as
shall
i r r e v o c a b l e for
be applied
Standard Deductions (OSD) in lieu of the of deduction
must be
consistently
year.
taxable
returns for the
quarterly

487

486
Forin hcome Tae Credit and OsD Foreign Incime Tae Credht and OSD
morising the GPP
Sold
may choose between itemized deductions
oSD, regardless or the method applied by the GPP.
or
Goods
Cost of
Merchandising
the cost of goods
sold
plus import duties
the goods are aceght
Invoice cost of
in The regulations likewise mandate all GPPs and their individual
goods to the where
place still in transit.
transporting the are artners to signify their intention to claim either the OSD or the itemized
the goods
insurance while
including deduction by checking the appropriate box in their income tax return filed
for the first quarter of their taxable year. Once the election is made, the
Manufacturing finish goods such eame type of deduction must be consistently applied for all the succeeding
in the production of the as raw
All cost incurred overhead, frei quarterly returns and in the final income tax return for the taxable year.
labor and manutacturing
materials used, direct the raw matedS, the quarterly income tax return but
insurance premiums, and other incurred
costs to bring Any taxpayer who is required to file as
may be used interchangeahi
failsto do so shall be considered having
availed of the itemized
the factory or warehouse. The term deductions option for the taxable year. (Revenue Regulations No. 02-10,
and sold.
manufactured
cost of goods February 24, 2010).
Sellers of Services
incurred to provide Submission of Financial Statements
All direct costs and expenses necessariy the
An individual taxpayer who is entitled to claim the OSD shall not
services including:
salaries and benefits of personnel, consultants and specialists be required to submit with his return such financial statements otherwise
cost of facilities directly utilized in providing the service such required under the tax code. Provided, except when the Commissioner
as depreciation or rental of equipment used and cost of otherwise permits the individual shal keep such records pertaining to his
gross sales or receipts.
supplies.
Interest expense is not allowed as deduction under this category except in the case of banks
and other financial institutions. In the case of corporation, however, said corporation is still
submit is financial statements when files annual income
required to it its
tax return and to keep such records pertaining to its gross income.
General Professional Partnerships (GPPs)
As discussed in Chapter 5, for purposes of computing the LLUSTRATIVE EXAMPLES IN DETERMINING THEBASIS OF THE
distributive share of a partner of GPP, the net income of latter shall be 40% OSD FOR INDIVIDUALS AND CORPORATIONS
computed in the same manner as a corporation using either itemized
deduction or OSD (Section 26 of the Tax Code; Section 6 of RR 16-2008). Suppose a retailer of goods, whose accounting method is under the
accrual basis, has a gross sales of P1,000,000.00 with a cost of sales
Prior to the effectivity of RA 10963 (TRAIN Law), if the GPP amounting to P800,000. The computation of the OSD for individuals and
chooses itemized deductions, the corporations shall be determined as follows:
partners comprising it must also Ciain
temized deductions, which are in the nature of IfIndividual If Corporation
ordinary and necessay P 1,000,000
expenses for the practice of
profession that were "not claimed by Gross Sales P 1,000,000
GPP"during the year. On the other hand, if the GPP avails of
the Less: Cost of Goods Sold Not allowed 800,000
computing its net income, the partners can no Basis of the OSD P1,000,0000 P 200,000
deductions from their share in the net Ci longer is en 40%_ 40%
a income of the GPP because
D
X OSD Rate (maximum)
proxy "all
for items of deductions in arriving at taxable income
d oSD Amount P 400,000 P 80,000
covers or in lieu
the of the itemized
deductions allowed to both tne and
partner(s). However,
under the TRAIN Law, the
pa

488 489
Friyt Incone Tae Credit andcOSD oreign Ihcome Tay Credit and OS7D
Solution
of the itemized dedes:
to the OSD in lieu
use Gross sales
If the taxpayer opts as amended, his/ its net t Cost of sales P10,000.000
allowed under
Section 34 of the
follows:
Code,
taxable Salaries expense (5.000,000)
income shall be as
Depreciation expense (800,000)
lfIndividual f Corporation Rent expense (300,000)
P1,000,000 Bad debts written off (500,.000)
Gross Sales
Not allowed P1,000,000 **"Interest expense (50,000)
Less: Cost ofSales
P1,000,000 800,000)
P 200,000 Taxable income (84.000)
Gross Income P3,266,000
Less: 0SD (maximum) (400,000) 80,000 ** Interest expense
P600,000
Net Incomeloss
(before personal exemption)
P120,000 Less: 33% x P200,000 P150,000
Allowable interest expense 66.000)
Provision for bad debt is a nondeductible PB4,000
expense
ILLUSTRATION 3-CASE A-Corporate Taxpayer: Capital loss is deductible only to the extent of capital gain. For
corporate taxpayers, rules on "holding period' is not applicable
Capital gain on sale of land is subject to a 6% captal gains tax
The following data were provided by ABC Corporation:
Gross sales P10,000,000
Cost of sales
2 P3,000,000 computed as:
5,000,000 Gross sales
Salaries expense 800,000 P10.000.000
Cost of sales
Depreciation expense 300,000 5,000,000)
Rent expense
Gross income 5.000,000
500,000 OPEX-OSD (40% x P5M)
Provision for bad debts 100,000 (2,000.000)
Bad debts written off Taxable income P3,000,000
50,000
Interest expense 150,000
Capital gain on asset held for 3 years 200,000 CASEB-Individual Taxpayer
Capital loss on asset held for 2 years 230,000 Assume the taxpayer is a resident citizen:
Capital gain on sale of land held as capital asset Gross sales P10,500,000
500,000
Interest income from savings deposit 200,000 Sales returns and allowances 300,0
Royalty income 100,000 Sales discounts ,000
Cost of sales 5,000,000
Required Salaries expense .000
1. Determine the taxable income Depreciation expense 400.0
2.
using itemized deduction 0.000
Determine the taxable income using OSD
Rent expense
Provision for bad debts 100,000
Answer Bad debts written off 50,000
1. P3,266,000 Interest expense 150,000
Rental income 4,000
Miscellaneous income 100,000
Capital gain on sale of land held as capital asset 500,000
Interest income from savings deposit 200,000

490 491
ruiyn Income Vae Crdit and OSTD
Freijt lacome lae Credit ando
OszD
CHAPTER EXERCISES
Choose the letter of the correct answer
itemized deduction
Required income using ed a taxpayer to deduct or set-off
privilege granted
Determine the
taxable
using OSD 1. A against Philippine
1
the taxable
income income tax the income war-profits and excess-profts taxes that he
Detemine
2. has paid or has accrued in a foreign country
a. Tax exemption
follows:
Answer computed as b. Tax consolidation
1. P3,400,000
Gross sales P10,500,000 C. Tax deductions
Sales retums
and allowances (300,000) d. Tax credit
Sales discounts (200,000)
Cost of sales (5,000,000) Statement 1: At the option ofthe taxpayer, income taxes paid in
Salaries expense 800,000) foreian countries can be claimed as deduction from gross income or
Depreciation expense (400,000) tax credit subject
to limit.
Rent expense (500,000)
Bad debts written
off (50,000) Statement 2: An alien residing and doing business in the Philippines
credit for income taxes paid in other country
is allowed to have tax
a
Interest expense [150,000-(200,000x33%)] (84,000)
Rental income 134,000 a. Statements 1 & 2 are false
Miscellaneous income 100,000 b. Statement 1 is true but statement 2 is false
Taxable income P3,400,000 C. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

P6,072,400 computed as: 3. One is entitled to tax credit for taxes paid to foreign country
2 Gross sales P10,500,000 a. Resident aliens
Sales returns and allowances (300,000) b. Domestic corporation
Sales discounts (200,00) c. Nonresident aliens with reciprocity
NET SALES P10,000,000 d. Non-resident citizens
Cost of sales Not Allowed
Rental income 134,00
4. One is entitled to tax credit for taxes paid to foreign country
Miscellaneous income 100,000) a. Non-resident aliens
Total Sales/Receipts* P10,234,000
b. Foreign corporation
OPEX-OSD (P10,234,000 x 40%) (4,093,600) C. Resident aliens with income derived solely within the
Taxableincome P6,140,400
Philippines
d. Beneficiaries of estates and trusts

5. Who is not entitled to foreign tax credit?

a. Nonresident citizen
b. Resident alien
C. Resident foreign corporation
d. All of the above

493
492
Credit and Os) Teruye heme lis Credt ard O57
V. When there is tax
refund of a foreign income tax
a
country, in the ase of
case o
a previously
Income tax
payment to a foreign domestic claimed as a tax credit, the refund
income.
wil constitute taxable
6 c l a i m e d as

corporadion
may be income a. land llonly
Deduction
from gross
tax due c.I, Wand il only
a. income b. Iand Ill only
Tax credit against
credits at the same time d1, I, HI and V
b. and tax
c.Bothdeduction from the gross income or as a tax credit
deduction
d. Either as
a
tax due
Usethefollowingdata for thenext two (2) questions
against
the income A taXDayer provided the following data for
calendar year ending
December 31, 2018: (ASsume exchange rate of $1-50).
in the case of a ree:.

to a foreign country, sident

Income tax payment
claimed as Gross Income
Philippines Canada
corporation may be
income P4,000.000 S40.000
Deduction from gross Deductions P2.550.000 $15.000
income tax due
a
Tax credit against Income tax paid $3,000
income or as aa
deduction from the gross
tav
tax credit 11 Assume the taxpayer is a resident citizen, how much shouid he report
c. Either as a income tax due
against the as income
tax payable at year end?
above
d. None of the a. P150,000 P564 000
b. P330,556 d. P714.000
is not required to file income tay
8 Which of the following taxpayers
claim any tax credit?
returns and thus cannot is domestic corporation, how much should be
12. Assume the taxpayer
a
a Domestic corporations
Private educational institutions reported as income tax payable at year end?
a. P150,000 c. P660.000
Resident foreign corporations
b. P375,000 d. P810.000
d. Nonresident foreign corporations
tax credit claim the same?
9 How may a taxpayer entitled to foreign
a. May be claimed either as deduction from the gross incomeeor Use the following data for the next two (2) questions
data for 2018
A domestic corporation had the following
as a tax credit, at the option of the corporation P1.000.000
Taxable income, Philippines
b. May be claimed only as a deduction 600.000
Taxable income, X Foreign country
C.May be claimed only as at ax credit Taxable income, Y Foreign country 400.000
d. Do not qualify either as a deduction or as at ax credit 250,000
Income tax paid to X Foreign country
Income tax paid to Y Foreign country 120.000
10. Tax credit for foreign income tax paid or incurred is alowed to a 110.000
of the year
citizen of the Philippines or a domestic corporation. Determine which Philippine tax paid, three quarters
among the statement(s) below regarding tax credit is/are correct. how much should be
When a taxpayer is qualified to take a tax credit for a foreign 13. Assume the a domestic corporation,
taxpayer is
end?
income tax paid, he may take a deduction instead of such tax. reported as income tax payable at year
c . P190.000
a. P600,000
When there are several foreign countries to which income
b. P300,000
d. P120,000
axes were paid, a taxpayer qualified, and he opts to take tax
credit. He must take all the income taxes
paid to foreign 14. If the corporation chose to deduct
from gross the income the foreign
cOuntries as tax credit. income tax payable?
The term "income tax for how much would have been the
which credi may be taken means income tax paid, c. P489,000
tax proper
only, not including any interest or surcharge a. P600,000
d. P379,000
thereon. b. P300,000

495
494
ereitn
lncvme Credit and OSD Fercitn Income Tie Crdit and OSD
19. Thefollowing statements pertain to Optional Standard
limitations A corporations. nose the deduction for
a. If the corporation isincorrect
under

in the tax credit

Tormulas andlor B for statement
15. The multiplier payments
iss a
trading concern, OSD should be based
foreign
income tax

Philippine
income due based
tax Philippines
taxable income from
on the taxable ino. on Gross
sales
cost of services
less sales
returns, discounts, allowances, and
a. without the
within and
If thecorporation is a seller of services, OSD should be based
on the taxable inco. b.
sources
based
b. Philippine
income tax due me
from on Gross receipts less sales
Philippines only
within the
sources
based on taxable income ahro allowances, and cost of sales returns, discounts and
C. Foreign income tax due oroad C. Passive incomes which have been
d. None of the
above
source shall not form part of the subjected a final tax at
gross income for purposes of
deduction allowed to individuals and computing OSD
16. The optional standard their taxable income took effect on d. None of the above
corporations in computing
a. January 1, 1998
b. July 1, 2008 20. Optional standard deduction
a. Is equal to 40% of the gross income from
C.January 1, 2008 business or practice
d. July 6, 2008 of profession.
b. Cannot be used as a deduction from
deduction of an individual. the C.
compensation income.
May be availed by all individuals
17. For purposes of Optional Standard
Optional Standard Deduction of forty percent (40%) should be based d. May be availed of by the taxpayer whether or not he signifies
on his desire to elect optional standard deduction.
a. If a trading concern, gross profit from sales
b. If a service concern, groSs receiptis less direct cost of services
C. Gross sales or gross receipts
21. Statement 1: For calendardeduction
year 2009, an individual taxpayer may
or optional standard deduction of
d. Means gross profit from sales, or gross receipts or revenues claim either the itemized
40% of net sales/receipts.
less direct cost of services, plus all other items of gross Statement 2: For calendar year 2009, a corporation may claim either
income; the itemized deduction or optional standard deduction of 40% of gross
income.
18. Which of the following should be used as a basis in computing the a. Statements 1 & 2 are false
Optional Standard Deduction ? b. Statement 1 is true but statement 2 is false
. For individual taxpayers using the accrual basis of accounting,
C. Statement 1 is false but statement 2 is true
oSD is based on 40% of gross sales.
I. For individual taxpayers
d. Statements 1 and 2 are true
using the cash basis of accountng.
OSD is based on 40% of gross
I. For individual
receipts. 22. Statement 1: An individual taxpayer could claim both the itemized
taxpayers using the other basis of accountung deduction and personal exemption in the same taxableyear
Such as percentage of completion method, OSD is based on
40% of gross receipts or
sales, as the case may be. Statement 2: An individual single proprietorship couldin claim
deduction the
both the
same
V. itemized deduction and optional standard
For OsD purposes, corporate taxpayers shall compute tne taxable year.
OSD in the same manner
with individual
a. land Il only taxpayers a. True, True c. True, False
b. 1, Il and lll C. All of the above d. False, True
only b. False, False
d. None of the above

496
497
Forige Incone Tat Credit
and OSD
23. The following may be
allowed to claim OSD in lieu ofthe
itemized feriyn Inceme Tax Cradit
and OSD
deductions, except Operating expenses without vouchers OSDD
a. Taxable estates and
trust receipts and
b. Non-Resident aliens Interest income from 500,000
C. Resident foreign corporationss
savings deposit
Interest income from deposit
d. Domestic corporations Royalty income under FCDS 80,000
125,0,000
24. One of the following statements is correct. A choice by an indi Determine the following: 100,000
of the Optional Standard
Deduction means that: idual 27. Taxable ncome using
a. His income tax return need not be accompanied by fine a. P1,675,000
itemized deduction
statements
ncial b. P2,175,000 C. P1,700,000

b. He need not keep books of accounts d. P2,200,000

C. He need not have records of gross income 28. Taxable income using OSD
d. His choice can still be changed by filing an amended return a. P3,755,000
b. P5,470,000 C. P3,695,000
d. P3,720,000
25. Which of the following income is to be reduced by itemized
deductions? 29. Gary. a resident citizen, had the
a. Compensation income expenses for a calendar year: following data on income an
b. Business income Gross sales
C. Passive income Sales returns P12,000,000
d. Capital gain Sales discounts 1,000,000
Purchases 550,000
26. Freight in 5,000,000
Statement 1: Business anda nonresident
outside the
professional income derived within and
Purchase returns 150,000
Philippines by Filipino citizen are granted 200,000
with allowable deductions. Purchase discounts
100,000
Statement 2: Individual taxpayers may apply for itemized deductions Inventory, beginning 300,000
or optional standard deduction. Inventory, end 100,000
a. Statements 1& 2 are false Interest income on notes 100,000
b. Statement 1 is true but statement 2 is false receivable
C. Statement 1 is false but statement 2 is true Dividend from resident 100,000
d. Statements 1 and 2 are true Corporation
The taxable income using OSD should be
a. P5,650,000
Use the following data for the next two (2) questions C. P6,370,000
The taxpayer is a domestic b. P5,600,000 d. P6,420,000
Gross sales
corporation:
P9,350,000
Sales returns and allowances 30. A resident citizen of the Philippines has the following data on income
250,000
Sales discounts and expenses:
100,000 Gross compensation income (net P200,000
Interest income on trade notes 150,000
Other income
receivable of exclusions)
50,000
Cost of sales 3,000,000 Gross sales 900,000
Operating expenses with vouchers and receipts 4,000,000 Cost of sales 500,000
Business expenses 200,000

498 499
edit
Fereitn lncone lag Credit and OSD
He avails
Optional Standard Deductie
himself of the uction (O SD). How
income?
taxable net
much is his C. P420,000
a. P740,000
d. P390,000
b. P610,000

is a general partnership (disregard

31. Assume the taxpayer
the distributable income using OSn
OSD should
compensation income),
a. P168,000
C. P240,000 be
b. P600,000 d. 378,000

32. Assume the taxpayer is a general professional partnership (disr

sregard
compensation income), the distributable income using OSD sho gard
a. P168,000 c. P240,000
b. P600,000 d. 540,000

500