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Home Financial Literacy

This Is the Portion of Your Salary Exempted/Deductible from Tax

Nairametrics by Nairametrics
June 24, 2018
in Financial Literacy, New to Investing
This Is the Portion of Your Salary Exempted/Deductible from Tax
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The Personal Income Tax Act was amended in June, 2011, to address some of the issues with the previous act, especially as it affects deductions and reliefs. The first thing you want to take out is deductions and then take out the allowances from your salary before you get to the taxes which you will pay.

Deductions

This is called Consolidated relief allowance.

You deduct the Higher of N200,000 or 1% of gross income, plus 20% of gross income. Note that gross income or emoluments means wages, salaries, allowances (including benefits in kind), gratuities, superannuation, and any other income derived solely by reason of employment.

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Allowances – Child allowance

You deduct N2,500 for each child, up to a maximum of four children, provided that none is above 16 years or married. However, relief can be granted for a child over 16 years if the child is in a recognised school, under artisanship, or learning a trade.

Reimbursements Expenses

You also deduct reimbursement expenses incurred in the performance of employment duties from which it is not intended that the employee should make any gain or profit. You may have to provide proof of this, like receipts or other evidence of payments.

Interest and dividend

Interest income earned from debt instruments including treasury bills and corporate bonds are now fully exempted, while withholding tax at 10% is the final tax on dividend.

Interest on Mortgage

Interest expenses paid on mortgage for a residential property is exempted from tax. However, it must be a residential property and must not be used for commercial purposes.

Pension Fund

Pension contribution from an employee is also tax exempt and must be deducted before arriving at taxable income. Therefore, the portion of the employee’s salary that is deducted from salary as pension will also be deducted before arriving at taxable income.

National Housing Fund

Employee contribution is deducted before arriving at taxable income. The amount contributed by the employee for NHF will also be deducted for tax purposes.

After you deduct all these exemptions and allowances from your salary, you arrive at the Taxable Income, which you then apply the relevant tax tables to.


This article first appeared on Nairametrics in February 19, 2014.


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Tags: National housing fundPension FundsalaryTaxable income
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Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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