How Income Tax is calculated

How Income Tax is calculated
September 12, 2023 – 11:35

As announced by the Ministry of Economy, starting in October there will be a new non-taxable minimum, which will be raised to 1,770,000 million pesos per month, which is equivalent to about 15 minimum wages.

Income Tax is settled as established by Law 20628 of Income Tax in its article 79 inc. c), and is calculated on all income for the fiscal year (between January 1 and December 31 of each year). Although it is an annual tax, the regulations establish monthly withholdings that must be carried out on salary settlements, whether monthly or retroactive.

For the purposes of calculating the tax, personal deductions such as family responsibilities, medical-care fees, education expenses, rent, etc., which may differ between different beneficiaries.

As announced by Ministry of Economy, Starting in October there will be a new non-taxable minimumwhich will be taken to 1,770,000 million pesos per month, which is equivalent to about 15 minimum wages.

Profits: What percentages are applied in calculating the tax?

The law of income tax Article 92 establishes the scale that must be applied for the calculation. It is not a fixed percentage but a progressive rate, ranging from 5% to 35%, applied to the net profit.

Earnings: Why can withholding vary throughout the year?

The income tax is annual calculation, But throughout the year, withholdings are made on the earnings received, which act as a payment on account of the tax that must be paid at the end of the year. fiscal period. For this reason, it is possible that the amount of withholdings made varies month to month, due to different factors that impact the calculation:

  • Variation in gross assets: An increase in your gross assets will cause the tax values ​​to vary compared to previous months.
  • Presentation of sworn statements F.572 (SIRADIG): Both the original presentation and the modifications made throughout the fiscal period will have an impact on the calculation of the tax. Through this form you can declare deductions, which will reduce it, or report income from other sources, which will cause an increase in the calculation base.
  • Rate Variation: As the amount to be withheld depends on your Net Income Subject to Tax, in the event that this increases it may happen that:
  • You pay more tax, but maintaining the same section on the scale used to determine it (according to article 92 of the Income Tax Law); either
  • that passes to another section and there is a substantial change in the amounts to be withheld.
  • By application of the 35% limit on salaries: The income tax law establishes that the withholdings to be made may not exceed 35% of the net profit for the month (that is, the gross income less the legally required discounts). If this limit was applied in a month, the amounts not withheld must be discounted to the following month, which will increase the amount to be withheld. This withholding may be made until March of each year. Once this period has ended, if it has not been possible to fully withhold the tax corresponding to the previous fiscal period, the beneficiary must register for the tax and comply with the obligations of annual determination and payment of the tax under the established conditions, deadlines and forms. .

Source: Ambito

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