Personal income Tax for employees is governed throughout the Country by the Personal Income Tax Act. Pursuant to the Act, it has to be filed monthly, in order to arrive at an accurate figure, below are the rules to follow:
Rule 1
Multiply the Employee’s gross monthly income by 12 (or 13 in cases where employees earn the 13th month). This will give us the total annual income.
so for an employee that earns 100,000.00 per month,
= N1,200,000.00 per annum.
Rule 2 (Getting to taxable Income)
It is not the entire gross amount that the employee earns that is subject to tax. The Employee is often entitled to some reliefs. Some of these reliefs are automatic, while others are either by operation of law (for example when an employer has at least 15 employees) or by choice (Health insurance scheme). Once eligible, all reliefs will be allowed to be deducted before arriving at the actual sum that is subject to tax (kindly note that (a) and (b) below are automatic and universal)
- The first to be deducted is 20% of the gross.
- The second to be deducted automatically is either 1% of the gross or N200,000.00 (Whichever is higher).
- Pension (8% of gross)
- National Health Insurance scheme (5% of gross)
- National Housing Fund (2.5%)
So for the same employee that earns N1,200,000.00 per annum
It will be:
For (a) N1,200,000.00 less 20% = N1,200,000.00 – N240,000.00 = N960,000.00
For (b) 1% of gross is N12,000.00 and it is less than N200,000.00 so We will deduct N200,000.00 from what is left in (a) above because N200,000.00 is higher than 1% of gross. So New figure is N960,000.00 – N200,000.00 = N760,000.00
For (c), (d) and (e) We can keep applying the same principles in (a) and (b) above until We arrive at the Taxable income.
Rule 3
After all the deductions in Rule 2 above, whatever is left will be subject to the following:
| Lump Sum | Tax Rate | Tax to pay per annum |
| The First N300,000.00 | 7% | N21,000.00 |
| Next N300,000.00 | 11% | N33,000.00 |
| Next N500,000.00 | 15% | N75,000.00 |
| Next N500,000.00 | 19% | N95,000.00 |
| Next N1,600,000.00 | 21% | N336,000.00 |
| Above N3,200,000.00 | 24% | Only the excess to Infinity |
So whatever calculation that We get with Rule 3 is the Personal income Tax that We are to pay.
Rule 3 (rider)
Where there is an excess above a rate, it is the next tax rate that is used to ascertain what the tax is. It is usual for the amount to tax to be beyond a range and not fit into the next.
For example the taxable income can be N350,000.00
The first N300,000.00 will be taxable at 7%
While the N50,000.00 will be taxable at 11%
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