BIR Form 1602Q: Final Tax on Bank Interest After CMEPA Removed the Long-Term Deposit Exemption

BIR Form 1602Q is the Quarterly Remittance Return of Final Taxes Withheld on Interest Paid on Deposits and Yield on Deposit Substitutes/Trusts/Etc. — the return banks and other financial institutions file to remit the final tax they withhold from interest credited to depositors’ accounts. It matters more than usual in 2026 because Republic Act No. 12214, the Capital Markets Efficiency Promotion Act (CMEPA), removed the old exemption for long-term deposits effective July 1, 2025, so a depositor relying on outdated “tax-free after 5 years” advice is now being taxed on interest they may have expected to receive tax-free.

What BIR Form 1602Q reports and who files it #

BIR Form 1602Q is filed by banks, non-bank financial intermediaries, finance corporations, investment and trust companies, and similar institutions to remit the final tax withheld on interest paid on deposits and yield on deposit substitutes, trust funds, and similar arrangements, on a quarterly basis. The institution — not the depositor — is the withholding agent: it deducts the final tax before crediting interest to the account, then consolidates and remits everything withheld that quarter through this return. Because the tax is final, the depositor has no further filing obligation on that specific interest income; it is not included again in the depositor’s own annual income tax return.

The rule that changed: CMEPA and the long-term deposit exemption #

Before July 1, 2025, interest on a long-term deposit or investment certificate that was BSP-prescribed and held to full maturity of five years or more could be entirely exempt from final tax, with a declining scale — 5%, 12%, or 20% — applying instead if the depositor withdrew or pre-terminated earlier than the 5-year mark. Republic Act No. 12214 (CMEPA) removed that exemption structure effective July 1, 2025, replacing it with a uniform 20% final withholding tax that applies to interest income on deposits regardless of how long they have run.

A widely cited summary of the change states it plainly:

“With the effectivity of CMEPA on July 1, 2025, the tax exemption of interest income derived from long-term deposit accounts is now a thing of the past.”

This site relied on secondary CMEPA implementation summaries for this passage and the surrounding rate details, as the BIR’s own implementing regulation could not be reached directly to re-verify the exact wording — confirm the precise text before relying on it for a formal filing position.

Old rule vs. new rule at a glance #

Does this apply to deposits opened before the change? #

Yes — reported guidance describes the new flat rate as applying to interest earned on or after July 1, 2025, regardless of when the underlying long-term deposit was originally placed. A depositor who opened a 5-year time deposit in 2022 expecting a tax-free payout at maturity in 2027 is, based on this reporting, now looking at 20% final tax on interest accruing from July 1, 2025 onward — not the exemption terms that applied when the deposit was opened. Depositors relying on the old long-term exemption as part of a retirement or savings plan should confirm current treatment with their bank rather than assume the original terms still hold.

Worked example: a depositor caught by the change #

A depositor placed a ₱1,000,000 five-year time deposit in 2022, expecting the interest to be exempt at maturity under the old long-term deposit rule.

The bank, as withholding agent, applies the new 20% rate automatically and reports it on Form 1602Q — the depositor does not need to file anything, but should not expect the exemption they may have planned around.

How this fits with the rest of the withholding tax system #

BIR Form 1602Q covers a final tax on passive interest income — a different category from the creditable withholding tax covered by BIR Form 2307 and BIR Form 1601-EQ on business income payments. See Final Withholding Tax vs. Creditable Withholding Tax for that distinction, and Withholding Tax on Interest, Royalties, and Dividends for how interest withholding compares with the other passive-income categories under NIRC Section 24(B).

Frequently Asked Questions #

What is BIR Form 1602Q? #

BIR Form 1602Q is the Quarterly Remittance Return of Final Taxes Withheld on Interest Paid on Deposits and Yield on Deposit Substitutes/Trusts/Etc., filed by banks, non-bank financial intermediaries, finance corporations, investment and trust companies, and similar institutions to remit the final tax they withheld from interest paid to depositors and investors during the quarter.

Who files BIR Form 1602Q — the bank or the depositor? #

The bank or financial institution files it, not the individual depositor. The institution withholds the final tax at source before crediting interest to the depositor’s account, then remits the withheld amount to the BIR quarterly using Form 1602Q. The depositor never files a separate return for that interest because the withholding is final.

Are long-term time deposits still exempt from final tax on interest? #

No, not since July 1, 2025. Republic Act No. 12214, the Capital Markets Efficiency Promotion Act (CMEPA), removed the prior exemption for interest on deposits held five years or more and replaced the old tiered schedule with a uniform 20% final withholding tax on deposit interest, regardless of the deposit’s holding period.

What was the final tax rate on long-term deposits before CMEPA? #

Before CMEPA took effect on July 1, 2025, interest income from long-term deposit or investment certificates that were BSP-prescribed and held to maturity could be fully exempt, with a declining scale of 5%, 12%, or 20% final tax applying if the depositor pre-terminated before reaching the 5-year mark, depending on how many years the deposit had actually run.

Does the removal of the long-term deposit exemption apply to deposits opened before July 1, 2025? #

Yes. Reported changes describe the new flat 20% final withholding tax as applying to all interest income earned on or after July 1, 2025, regardless of when the underlying deposit or investment certificate was originally placed — so interest credited after that date on an older long-term deposit is taxed under the new rule, not the terms in effect when the deposit was opened.

Summary #

BIR Form 1602Q is how banks remit the final tax withheld on deposit interest, and the rate structure it applies changed materially in 2025: CMEPA (RA 12214) replaced the old long-term deposit exemption with a flat 20% rate on all deposit interest from July 1, 2025 onward. Depositors don’t file this return themselves, but anyone who planned around the old long-term exemption should confirm current treatment with their bank rather than assume it still applies.