Filing BIR Form 1701 With Both BIR Form 2307 and BIR Form 2306 Credits: A Worked Example

A self-employed taxpayer who both performs professional services and earns bank interest during the year will typically end up holding two different kinds of withholding certificates — BIR Form 2307 for the professional fees and BIR Form 2306 for the interest — and only one of them belongs on the creditable withholding tax line of BIR Form 1701. Under NIRC Section 57, a creditable withholding tax (2307) is included in gross income and credited against the tax due; a final withholding tax (2306) is excluded from gross income entirely because the tax already withheld is the full and final tax on that income.

This guide is part of the BIR Form 2307 series. For the underlying distinction between the two certificate types, see Creditable vs Final Withholding Tax: What’s the Difference? and What Is BIR Form 2306?.

RR No. 2-98, Section 2.58.3(B), is the provision that ties a creditable withholding tax claim to the certificate establishing it:

“Claims for tax credit or refund of any creditable income tax which was deducted and withheld on income payments shall be given due course only when it is shown that the income payment has been declared as part of the gross income and the fact of withholding is established by a copy of the withholding tax statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom.”

That test applies to the BIR Form 2307 side of a taxpayer’s return — the income has to be in gross income, and the certificate has to establish the withholding. A BIR Form 2306, covering a completely different category of tax, never has to clear this test at all, because it isn’t being claimed as a credit in the first place.

Why can’t a 2306 and a 2307 be added together as credits? #

The two certificates represent two different relationships between the tax withheld and the tax actually owed, and treating them the same way would either undertax or double-tax the underlying income. NIRC Section 57 splits withholding into these categories, and BIR Form 2307 and BIR Form 2306 are the certificates that evidence each one:

• Creditable withholding tax (BIR Form 2307) — the amount withheld is an advance, partial payment of the payee’s eventual income tax liability. The income itself is still included in gross income, the tax due is computed on the full amount, and the withheld tax is then subtracted as a credit against that computed tax due.
• Final withholding tax (BIR Form 2306) — the amount withheld is the entire tax liability on that income, full stop. The income is not added to gross income again, and the withheld tax is not subtracted as a credit, because there’s no separate “tax due” left to compute on that income — the final tax already settled it.

Folding a BIR Form 2306 amount into the creditable withholding tax line on BIR Form 1701 would effectively ask for a second benefit on income that was already fully and finally taxed at source.

Worked example: a consultant with both certificate types #

A self-employed IT consultant earns ₱900,000 in professional fees for the year, correctly withheld at 10% expanded withholding tax by her corporate clients (₱90,000 total across several BIR Form 2307 certificates). She also keeps a time-deposit account that earned ₱25,000 in interest during the year, with the bank withholding the 20% final tax on bank deposit interest (₱5,000), evidenced by a BIR Form 2306.

Her gross taxable income for computing the income tax due is ₱900,000 — the bank interest never enters that figure at all. Her graduated income tax is computed on the ₱900,000 (less allowable deductions), and the ₱90,000 already withheld on her professional fees is subtracted from that computed tax as a creditable amount. The ₱5,000 final tax on her bank interest doesn’t appear anywhere on the computation — it was already the complete tax on that ₱25,000, settled the moment the bank withheld it.

What to attach, and what to just keep on file #

The BIR Form 2307 certificates that support your claimed creditable withholding tax are generally submitted as attachments to BIR Form 1701; the BIR Form 2306 is not, because it isn’t supporting a credit claim.

1. Total all BIR Form 2307 certificates for the year and confirm the sum matches the creditable withholding tax you’re claiming — see Reconciling BIR Form 2307 Certificates on Hand Against the Credit You Claim on BIR Form 1701Q for the quarterly version of this check.
2. Attach those BIR Form 2307 certificates (or the consolidated SAWT summarizing them) to your annual return.
3. Keep any BIR Form 2306 certificates in your own records as proof the final tax on that income was already withheld and remitted — you may still need them if the BIR ever questions why that income wasn’t part of your reported gross income.
4. Double-check that no income covered by a BIR Form 2306 was accidentally also included in your gross income figure.

Frequently asked questions #

Do I add my BIR Form 2306 amount to the creditable withholding tax on BIR Form 1701? #

No. BIR Form 2306 represents a final withholding tax, which under NIRC Section 57(A) already fully settles the tax due on that income. It is not added to the creditable withholding tax line, and the income it covers is not included again in your gross income — including it would tax the same income twice.

What’s the practical difference between a 2307 and a 2306 on my annual return? #

A BIR Form 2307 (creditable withholding tax) is included in your gross income and the tax withheld is subtracted as a credit against your computed tax due. A BIR Form 2306 (final withholding tax) is excluded from your gross income entirely, because the tax withheld on it already represents your full and final tax liability on that specific income.

Which of my income types normally come with a 2307, and which come with a 2306? #

Professional fees, rental income, and most business-to-business service payments are typically covered by creditable withholding tax (BIR Form 2307). Bank deposit interest, royalties to individuals, and certain dividends are typically covered by final withholding tax (BIR Form 2306). The two forms track fundamentally different tax treatments, not interchangeable paperwork for the same kind of credit.

What if I mistakenly include my BIR Form 2306 income in my gross income on BIR Form 1701? #

That overstates your taxable income and, if you then also tried to credit the final tax already withheld, would misstate your tax due in a way the BIR can catch when it cross-checks your return against the payor’s final withholding tax remittance. Keep the two income types and their certificates in clearly separate columns when preparing your return.

Do both a 2307 and a 2306 get attached to BIR Form 1701? #

The creditable withholding tax certificates (BIR Form 2307) supporting your claimed tax credit are generally required as an attachment. A BIR Form 2306 for final withholding tax, since it isn’t being claimed as a credit against the computed tax due, is kept with your records as proof the final tax on that income was already settled, rather than filed to support a credit.

Summary #

A BIR Form 2307 and a BIR Form 2306 represent fundamentally different tax treatments under NIRC Section 57: one is a credit against tax due on income still included in gross income, the other is a complete, final tax on income excluded from gross income entirely. Keep the two certificate types and the income they cover in separate columns when preparing BIR Form 1701, attach the 2307s that support your credit, and keep the 2306s as proof the final tax on that income was already settled. For more on the underlying distinction, see Creditable vs Final Withholding Tax: What’s the Difference? and Reconciling BIR Form 2307 Certificates on Hand Against the Credit You Claim on BIR Form 1701Q.