Question & AnswerQ&A (PRESIDENTIAL DECREE NO. 1156)
The primary purpose of Presidential Decree No. 1156 is to maximize the collection of income tax on interest earned from bank deposits by applying a withholding tax system on this type of fixed or determinable income.
Section 30(b) of the National Internal Revenue Code is amended to provide that interest on bank deposits shall be allowed as a deduction only if the tax on such interest was withheld and paid in accordance with Sections 53 and 54 of the Code.
The withholding tax rate imposed on interest on bank deposits is fifteen percent (15%).
Yes. No withholding of tax shall be made if the aggregate interest on all deposit accounts maintained by a depositor in any one bank during the taxable period does not exceed three hundred fifty pesos per year or eighty-seven pesos and fifty centavos per quarter. Also, interest paid or credited to non-resident alien individuals and foreign corporations are exempt from withholding.
Interest on a deposit account maintained by two persons shall be deemed to be equally owned by them for the purpose of withholding tax.
They must submit proof to the Commissioner of Internal Revenue that they are tax-exempt or enjoy preferential income tax treatment in order to have the withholding tax refunded or credited.
Banks shall withhold the tax without divulging the names of the depositors, and the tax shall be paid in the same manner and subject to the same conditions provided in Section 54 of the National Internal Revenue Code.
The decree is applicable to interest on bank deposits accruing on or after June 3, 1977, the date of its approval.
Interest on indebtedness incurred or continued to purchase or carry obligations whose interest is exempt from taxation under the Code is excluded from the deduction allowance and withholding provisions.
The interest income shall be included in the gross income in computing the depositor's income tax liability according to existing laws, despite the withholding tax.