Frappe HRMS – Chapter 8: Tax and Benefits

Part of the Frappe HRMS documentation series. | Upstream: github.com/frappe/hrms

The Tax and Benefits module handles income tax slab configuration, employee tax exemption declarations and proof submissions, flexible benefit applications, retention bonuses, incentive payments, and other income declarations used in annual tax computation.

1. Income Tax Slab

Purpose

Defines the graduated tax bracket table used to compute withholding tax deducted from employee salaries. In the Philippines, this encodes the TRAIN Law (RA 10963) income tax schedule.

Philippine TRAIN Law Tax Table (2025)

Annual Taxable Income	Tax Rate
Not over ₱250,000	0%
Over ₱250,000 to ₱400,000	15% of the excess over ₱250,000
Over ₱400,000 to ₱800,000	₱22,500 + 20% of the excess over ₱400,000
Over ₱800,000 to ₱2,000,000	₱102,500 + 25% of the excess over ₱800,000
Over ₱2,000,000 to ₱8,000,000	₱402,500 + 30% of the excess over ₱2,000,000
Over ₱8,000,000	₱2,202,500 + 35% of the excess over ₱8,000,000

Steps

Go to Payroll → Tax & Benefits → Income Tax Slab → New.
Enter Slab Name (e.g., Philippine TRAIN Law 2025), Effective From, and Company.
Set Currency to PHP.
Under Taxable Salary Slabs, add each bracket:
- From Amount, To Amount, Percent Deduction, Fixed Amount (the base tax for that bracket)
Under Other Charges, add any additional surcharges or levies if applicable.
Save and submit.

Assignment

Income Tax Slabs are referenced in the Salary Structure and activated via Employee Tax Exemption Declaration and Employee Benefit Application records.

2. Employee Tax Exemption Declaration

Purpose

The employee's annual declaration of investments and expenses that reduce their taxable income (e.g., 80C equivalent exemptions, if applicable). For the Philippines, this covers declarations of non-taxable income sources and de minimis claims.

Steps

Go to Payroll → Tax & Benefits → Employee Tax Exemption Declaration → New.
Select Employee and Payroll Period.
Under Declarations, add each exemption category and declared amount.
Submit. The declared amounts reduce the employee's projected annual tax.

Note

For the Philippines, the primary tax computation driver is the TRAIN Law slab. Exemption declarations are used for items like:

Non-taxable de minimis benefits in excess of limits (to track what portion is taxable)
Other income declarations (per BIR requirements)

3. Employee Tax Exemption Proof Submission

Purpose

At year-end, employees submit documentary proof (receipts, certificates) for previously declared tax exemptions. The system validates proof against declarations and adjusts the final annual tax computation accordingly.

Steps

Go to Payroll → Tax & Benefits → Employee Tax Exemption Proof Submission → New.
Select Employee and Payroll Period.
For each declared exemption, provide the proof amount and attach supporting documents.
Submit.
System recalculates remaining withholding tax for the year based on proven vs declared amounts.

Deadline

In the Philippines, BIR Form 2316 must be issued by January 31 of the following year. Ensure proof submissions are collected and finalized before year-end payroll closing.

4. Employee Tax Exemption Category

Purpose

The top-level category for tax exemptions (e.g., De Minimis Benefits, Other Income). Parent grouping under which sub-categories are created.

Steps

Payroll → Tax & Benefits → Employee Tax Exemption Category → New → Enter name → Save.

5. Employee Tax Exemption Sub Category

Purpose

Specific exemption line items under a category (e.g., "Rice Subsidy", "Medical Cash Allowance", "Uniform Allowance" under "De Minimis Benefits"). Employees declare amounts per sub-category.

Steps

Go to Payroll → Tax & Benefits → Employee Tax Exemption Sub Category → New.
Enter Sub Category Name.
Link to the parent Employee Tax Exemption Category.
Set the statutory maximum exemption limit.
Save.

6. Employee Benefit Application

Purpose

For organizations offering flexible benefit programs — employees select which components (meal allowance, medical, transportation, etc.) they want to receive within an approved budget. Submitted at the start of the benefit period.

Steps

Go to Payroll → Tax & Benefits → Employee Benefit Application → New.
Select Employee and Payroll Period.
Under the Benefits table, select which benefit components to apply for and the amount for each.
Total must not exceed the employee's maximum benefit entitlement.
Submit for HR approval.

7. Employee Benefit Claim

Purpose

The actual claim against an approved Employee Benefit Application. Submitted when the employee incurs the expense for which the benefit was approved.

Steps

Go to Payroll → Tax & Benefits → Employee Benefit Claim → New.
Link to the approved Employee Benefit Application.
Enter claim date, amount, and attach receipt.
Submit. Amount is included in the next payroll run.

8. Retention Bonus

Purpose

A one-time payment made to retain a specific employee. Processed outside the standard salary structure.

Steps

Go to Payroll → Tax & Benefits → Retention Bonus → New.
Select Employee, Bonus Payment Date, and Bonus Amount.
Save and submit.
System creates an Additional Salary entry for inclusion in the payroll run on the specified date.

9. Employee Incentive

Purpose

Performance-linked one-time incentive payments. Similar to Retention Bonus but tied to performance metrics or milestone achievements.

Steps

Go to Payroll → Tax & Benefits → Employee Incentive → New.
Select Employee, Salary Component, Payroll Date, and Incentive Amount.
Submit. Creates an Additional Salary for the relevant payroll period.

10. Employee Other Income

Purpose

Allows employees to declare other income sources (e.g., rental income, freelance income, spouse income) so that the employer can compute the correct annual tax withholding. Required under BIR rules for employees whose total income from all sources exceeds thresholds.

Steps

Go to Payroll → Tax & Benefits → Employee Other Income → New.
Select Employee and Payroll Period.
Enter each other income source and projected annual amount.
Submit. System incorporates this into the annual tax computation.

Reports

Income Tax Computation — per-employee annual tax liability breakdown
Income Tax Deductions — monthly TDS deduction register for BIR reporting
Professional Tax Deductions — (if applicable) local professional tax register
Provident Fund Deductions — government contribution register (SSS/PhilHealth/Pag-IBIG)

Related Chapters

Frappe HRMS — main index
Frappe HRMS - Ch07 Payroll — income tax slabs are applied during salary slip computation
Frappe HRMS - Ch09 Philippine Localization — detailed setup for Philippine government contributions and BIR compliance