Retirement Pay or Pension Received by a Retired Officer

April 11, 1960 BIR RULING NO. 208-60 Mr. Paulino V. Nera 155 Progreso Street Pasay City S i r : Reference is made to your letter addressed to the Managing Editor of the Evening News, dated February 19, 1960, which was referred to this Office for a ruling stating the following: liblex "An officer in the Armed Forces of the Philippines was illegally reverted to inactive status without receiving any gratuity. But after several years of insistent request for legal clarification of his case and the consequent compensation, he was granted monthly pension for life effective the date of his reversion to inactive status; then he was paid now the total accumulated pension for six (6) years; naturally he has got to file an income tax return to include the past six years as "late filing" because he did not file income tax return for the past years he has not received any salary income correspondingly." You now request a ruling from this Office whether the abovementioned officer may claim personal exemptions to which he would have been entitled for prior years had he filed income tax returns for those years, in his income tax return to be filed for the calendar year in which his accumulated pension was actually received. In reply thereto, I have the honor to inform you as follows: An income tax return is required to be made for each calendar year ending on December 31st of every year and net income computed on that basis. (Sec. 37, in relation to Sec. 169 of Rev. Regs. No. 2). All items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer and deductions taken accordingly. (Sec. 39, Tax Code, in relation to Sec. 38 of Rev. Regs. No. 2). It is well settled that a taxpayer whose income is from salary or the like is required to file his income tax return on cash basis. A cash basis taxpayer should report income in the year actually received. Income tax is an annual tax, and each taxable year for purposes of such tax must be treated as separate and independent of every other taxable year. Personal exemptions of an individual are allowed in the nature of deduction from the amount of his net income. (Sec. 23, Tax Code). As the net income of a retired officer is computed with respect to a fixed period which is the calendar year, only his personal exemptions corresponding to such year in which he is required to file an income tax return may be claimed and allowed. Accordingly, the aforesaid officer is not entitled to a carry-over of his personal exemptions for prior years in which he did not file income tax returns, to the years in which he is required to file a return of income. In this connection, please be further informed that retirement pay or pension received by a retired officer on or after June 19, 1959, pursuant to Republic Act No. 340, otherwise known as the "Armed Forces Retirement Act", is exempt from income tax. (Sec. 10-A, Republic Act No. 340, as amended by Republic Act No. 2310). cdta Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue