{"id":19603,"date":"2026-01-12T21:52:10","date_gmt":"2026-01-12T21:52:10","guid":{"rendered":"https:\/\/www.europesays.com\/africa\/19603\/"},"modified":"2026-01-12T21:52:10","modified_gmt":"2026-01-12T21:52:10","slug":"what-employees-must-know-about-deductions-and-rates-in-personal-income-tax","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/africa\/19603\/","title":{"rendered":"What employees must know about deductions and rates in personal income tax"},"content":{"rendered":"


\n <\/a><\/p>\n

Who is required to pay personal income tax in Nigeria under the 2026 reforms?<\/p>\n

Personal income tax (PIT) applies to all individuals who are considered tax residents in Nigeria and earn taxable income above the N800,000 annual exemption threshold.\n<\/p>\n

This includes salaried employees under the PAYE system, freelancers, self-employed persons, business owners, remote workers, and informal earners.\n<\/p>\n

Residency status, rather than nationality, determines liability, meaning individuals who reside in Nigeria and derive income, whether locally or, in certain cases, from abroad, may be required to pay PIT once their taxable income exceeds the exemption limit.\n<\/p>\n

Who is exempt from personal income tax, and what is the new minimum threshold?<\/p>\n

Individuals earning the national minimum wage or less are fully exempt from personal income tax. Additionally, the annual gross income of up to approximately N1.2 million, equivalent to roughly N800,000 in taxable income after deductions, falls below the tax threshold.\n<\/p>\n

The reforms also reduce PAYE liabilities for individuals earning up to N20 million annually, while several categories of income remain tax-exempt.<\/p>\n

Are Nigerians who earn income in the Diaspora taxable in Nigeria?<\/p>\n

The scope of taxable income depends on an individual\u2019s tax residency status under the Nigeria Tax Act 2025.\n<\/p>\n

Tax residents are liable to personal income tax on their worldwide income, regardless of where the income is earned or received. This includes salaries from foreign employers, freelance or contract income from overseas clients, investment income, and gains from digital or online activities.\n<\/p>\n

Non-residents are taxed only on income sourced from Nigeria, such as rental income from Nigerian property or profits attributable to a permanent establishment in Nigeria.\n<\/p>\n

An individual is generally considered a tax resident in Nigeria if they are domiciled in the country, maintain a permanent home available for personal use, have substantial economic or immediate family ties in Nigeria, or are physically present in Nigeria for 183 days or more within 12 months.\n<\/p>\n

Nigeria\u2019s Double Taxation Agreements (DTAs) with several countries provide relief mechanisms to prevent the same income from being taxed twice.<\/p>\n

Are remittances, gifts, loans, or bank deposits taxable?<\/p>\n

Under the Nigeria Tax Act 2025, remittances, gifts, loans, and bank deposits are not treated as taxable income.\n<\/p>\n

Genuine family support and personal transfers are exempt, as are both cash and non-cash gifts. Loans are not taxable because they are liabilities, not earnings.\n<\/p>\n

Simply holding money in a bank account is not taxed, although interest earned on deposits is subject to a 10 per cent withholding tax. A N50 Electronic Money Transfer Levy applies to electronic transfers of N10,000 or more and is paid by the sender. Banks also report accounts with high transaction volumes to tax authorities for compliance purposes.\n<\/p>\n

Will banks automatically deduct tax from my account or transactions?<\/p>\n

Banks do not automatically deduct personal income tax (PAYE) from your account. Tax authorities rely on employer payroll records, self-assessment filings, or audits to collect income tax. While banks report accounts with high transaction volumes or apply small levies like the N50 Electronic Money Transfer Levy (EMTL) on transfers of N10,000 or more, these are not income taxes.\n<\/p>\n

What deductions and reliefs can I legally claim to reduce my tax?<\/p>\n

Allowable deductions are expenses incurred wholly, exclusively, necessarily, and reasonably in the production of taxable income.<\/p>\n

National Housing Fund (NHF):\u00a0Mandatory 2.5 per cent of your basic salary contributed to NHF is deductible. This helps fund affordable mortgage loans for contributors.\n<\/p>\n

National Health Insurance Scheme (NHIS):\u00a0Contributions to NHIS are deductible, ensuring part of your income spent on mandatory health coverage is tax-free.\n<\/p>\n

Pension contributions:\u00a0Both the statutory 8 per cent employee contribution and approved Additional Voluntary Contributions (AVCs) are deductible, encouraging long-term retirement savings.\n<\/p>\n

Interest on loans for owner-occupied homes:\u00a0Interest paid on loans for your own residence is deductible, promoting home ownership.\n<\/p>\n

Life insurance and deferred annuity premiums:\u00a0Premiums paid during the year preceding assessment for personal life or deferred annuity contracts are deductible, supporting long-term financial security. Proof of payment is required.<\/p>\n

Rent relief:\u00a0Up to per centent of annual rent paid, capped at N500,000, is deductible. You must provide tenancy agreements or payment receipts to claim this relief.\n<\/p>\n

What are the new 2026 personal income tax rates and bands?<\/p>\n

First N800,000 at 0% ;
Next N2,200,000 at 15% ;
Next N9,000,000 at 18% ;
Next N13,000,000 at 21% ;
Next N25,000,000 at 23% ;
Above N50,000,000 at 25%.\n<\/p>\n

How do I calculate my PAYE step by step under the new rules?<\/p>\n

Step 1: Start with Gross Income\n<\/p>\n

Step 2: Subtract Statutory Deductions\n<\/p>\n

These reduce your taxable income:<\/p>\n

Pension contribution (8% employee portion)
\nRent relief \u2013 20% of annual rent (up to N500,000)
\nNHIS
\nNHF contributions (if applicable)
\nLife insurance and deferred annuity premiums
\nInterest on loans for owner-occupied homes<\/p>\n

Step 3: Apply the New Tax Bands\n<\/p>\n

Tax is applied gradually across all bands, not at a flat rate.\n<\/p>\n

Step 4: Divide by 12 to get the Monthly PAYE\n<\/p>\n

How much tax will I pay on a specific salary (N70,000 and N300,000 gross monthly)?<\/p>\n

Gross Monthly Salary: N70,000\n<\/p>\n

Annual gross Income: N840,000<\/p>\n

Statutory pension (8%): N5,600 monthly\n<\/p>\n

Taxable income = N70,000 \u2013 N5,600 = N64,400 monthly\n<\/p>\n

Annual taxable income = N772,800 <\/p>\n

The first N800,000 per year is tax-free.\n<\/p>\n

Since this employee earns below that, their PAYE is effectively N0.<\/p>\n

Take-Home Pay:\n<\/p>\n

N70,000 \u2013 pension and other allowable deductions\u00a0 = N64,400 net pay\n<\/p>\n

This employee will pay no PIT under the new system.\n<\/p>\n

Step 1: Start with Gross Income\n<\/p>\n

Gross Monthly Salary: N300,000<\/p>\n

Annual Gross Salary: N3,600,000\n<\/p>\n

Employee\u2019s annual rent: N600,000\n<\/p>\n

Statutory Pension = 8% of gross salary\n<\/p>\n

NHF = 2.5% of gross salary\n<\/p>\n

Rent Relief: 20% of annual rent (capped at N500,000)<\/p>\n

Step 2: Subtract Statutory Deductions\n<\/p>\n

1. Pension (8% of N3,600,000)
= N288,000\n<\/p>\n

2. NHF (2.5% of\u00a0 N3,600,000)
= N90,000\n<\/p>\n

3. Rent Relief\n<\/p>\n

Annual rent = N600,000<\/p>\n

20% \u00d7 600,000 = N120,000\n<\/p>\n

Allowed Rent Relief = \u20a6120,000 (because it is lower than \u20a6500,000)\n<\/p>\n

Total Annual Deductions = Pension + NHF + Rent Relief
= N288,000 + N90,000 + N120,000
= N498,000\n<\/p>\n

STEP 3: Compute Chargeable Income\n<\/p>\n

Chargeable Income = Gross Income \u2212 Total Deductions
= N3,600,000 \u2212 N498,000
= N3,102,000<\/p>\n

STEP 4: Apply the New Tax Bands\n<\/p>\n

Band 1: First N800,000 @ 0%
Tax = \u20a60
Remaining income:
N3,102,000 \u2212 N800,000 = N2,302,000\n<\/p>\n

Band 2: Next N2,200,000 @ 15%
15% \u00d7 2,200,000 = N330,000
Remaining income:
2,302,000 \u2212 2,200,000 = N102,000\n<\/p>\n

Band 3: Remaining N102,000 @ 18%
18% \u00d7 102,000
= N18,360\n<\/p>\n

Therefore,
Annual PAYE
= N0 + N330,000 + N18,360
= N348,360<\/p>\n

Step 5: Divide by 12 to get the Monthly PAYE
= N348,360 \u00f7 12
= N29,030\n<\/p>\n

How do I file and comply, especially if I\u2019m self-employed or a freelancer?<\/p>\n

Personal Income Tax (PIT) is administered by the State Internal Revenue Service (SIRS) in the state where you reside. Salaried employees usually pay through PAYE, which employers deduct and remit monthly. Self-employed individuals, freelancers, and business owners must file annual self-assessment returns.\n<\/p>\n

Step 1: Get or confirm your Tax Identification Number (TIN)
Every taxpayer must have a TIN issued by the relevant tax authority. Individuals typically need a valid ID (NIN, passport, or driver\u2019s licence), BVN (where required), and proof of address.\n<\/p>\n

Step 2: Identify the correct return type and tax authority
Self-employed persons file personal income tax self-assessment returns (commonly Form A or its state equivalent) with the SIRS of their state of residence. Forms are usually available on state IRS websites.\n<\/p>\n

Step 3: Gather supporting documents
Prepare key records such as your TIN, identification, income statements (payslips or business income records), pension and NHF contribution details, bank interest or rental income records, and any withholding tax (WHT) credit notes.<\/p>\n

Step 4: File and pay through approved channels
Most states offer e-tax portals (such as Lagos, FCT, and Rivers) that allow online submission of returns and supporting documents. Physical filing is also available at SIRS offices. Taxes due must be paid before the filing deadline to avoid penalties.<\/p>\n

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