How Personal Income Tax (PIT) / PAYE is calculated
Kemi Adesina
Last Update 12 days ago
Personal Income Tax (PIT) in Nigeria is calculated by subtracting allowable statutory deductions and reliefs from an employee's Gross Total Income, and then applying progressive tax rates to the remaining net taxable income under the Nigeria Tax Act.
Step 1: Gather Gross Total Income
This includes the employee's total gross earnings (Basic, Housing, Transport, and other allowances) before any deductions.
Step 2: Subtract Statutory Deductions and Allowable Reliefs
Under current tax regulations, the following payments and reliefs are deducted from Gross Income to arrive at the Net Taxable Income:
Taxable Income = Gross Income - (Pension + Health Insurance + NHF + Rent Relief + Other Statutory Deductions)
Step 3: Apply Progressive PAYE Tax Brackets
Once you have the Net Taxable Income, Personal Income Tax is applied incrementally using the progressive statutory tax bands:
How this works in Eazipay: You do not need to perform these calculations manually. When you set up an employee's salary and select their applicable deductions, Eazipay automatically applies these tax rules, rent reliefs, and progressive bands to compute the exact PAYE tax amount during payroll runs.
Step 1: Gather Gross Total Income
This includes the employee's total gross earnings (Basic, Housing, Transport, and other allowances) before any deductions.
Step 2: Subtract Statutory Deductions and Allowable Reliefs
Under current tax regulations, the following payments and reliefs are deducted from Gross Income to arrive at the Net Taxable Income:
- Pension: 8% of monthly emoluments (employee contribution)
- Health Insurance (NHIS / HMO): Actual amount contributed/paid for health insurance
- National Housing Fund (NHF): 2.5% of basic salary
- Rent Relief: 20% of annual rent paid, subject to a maximum relief cap of ₦500,000
- Other Statutory Contributions: Statutory contributions like NSITF and ITF where applicable by employer structure
Taxable Income = Gross Income - (Pension + Health Insurance + NHF + Rent Relief + Other Statutory Deductions)
Step 3: Apply Progressive PAYE Tax Brackets
Once you have the Net Taxable Income, Personal Income Tax is applied incrementally using the progressive statutory tax bands:
- First ₦800,000: 0% (Tax-free threshold)
- Next ₦2,200,000 (₦800,001 to ₦3,000,000): 15%
- Next ₦9,000,000 (₦3,000,001 to ₦12,000,000): 18%
- Next ₦13,000,000 (₦12,000,001 to ₦25,000,000): 21%
- Next ₦25,000,000 (₦25,000,001 to ₦50,000,000): 23%
- Above ₦50,000,000: 25%
How this works in Eazipay: You do not need to perform these calculations manually. When you set up an employee's salary and select their applicable deductions, Eazipay automatically applies these tax rules, rent reliefs, and progressive bands to compute the exact PAYE tax amount during payroll runs.