OPTIONAL STANDARD DEDUCTION

- The OSD is a scheme whereby a taxpayer is given the option to deduct from his gross revenue or
gross income a lump sum equivalent to a percentage of such gross revenue or gross income for
purposes of computing the net taxable income on which the income tax rate will be applied.

Note: This is in lieu of the itemized deduction where the taxpayer lists down all his expenses and the
corresponding amounts incurred to determine the amount of allowable deductions.

Q: Differentiate itemized deduction from OSD.

A: Itemized Deduction must be substantiated by receipts while OSD requires no proof of expenses
incurred because the allowable deduction is 40% of gross sales or receipts or gross income as the case
may be.

Q: Who may elect an OSD?

A: 1. Individuals
a. Resident citizens
b. Non-resident citizens
c. Resident aliens
2. Corporations
a. Domestic
b. Resident foreign corporations
3. Estates
4. Trusts

Q: Who may not avail of the OSD?

A: 1. Non-resident aliens whether or not engaged in trade or business in the Philippines; and
2. Non- resident foreign corporations.

SPECIAL DEDUCTIONS
- These are deductions usually allowed only for particular business or enterprises and not to
others, or may be allowed for all but are not provided for under the provisions of the NIRC but
under special laws.

Special deductions allowable under the NIRC:

A. Estates and Trusts
B. Insurance Companies
C. Mutual Marine Insurance Companies
D. Mutual Insurance Companies
E. Assessment Insurance Companies
F. Establishments granting sales discounts to or employing senior citizens

PREMIUM PAYMENTS ON HEALTH AND HOSPITALIZATION INSURANCE (PPHHI)

Who may avail of PPHHI as deduction:

1. Only an individual taxpayer; and
 2. In case of married taxpayers, only the spouse claiming the additional exemption for dependents
shall be entitled to this deduction.

Requisites for deductibility:

1. Insurance must have actually been taken;
2. The taxpayer’s family gross income does not exceed P250,000 in a taxable year; and
3. The amount deductible should only be limited to P2,400 per family or P200 per month.