How to understand personal taxes in Nigeria

Paying taxes can be confusing, especially with all the forms, rates, and deadlines in Nigeria. But understanding your personal taxes isn’t just about avoiding penalties—it’s about taking control of your finances.

By knowing how personal income tax works, you can stay compliant, avoid unnecessary fines, and even discover ways to save money legally.

Whether you’re a salaried worker, freelancer, or entrepreneur, understanding your taxes empowers you to make smarter financial decisions and plan for a more secure future.

What Are Personal Taxes?

Personal taxes are the money individuals pay to the government based on their income, earnings, or certain financial activities. In Nigeria, these taxes help fund public services like schools, hospitals, roads, and security.

The main authority responsible for collecting personal income taxes at the federal level is the Federal Inland Revenue Service (FIRS), while state tax offices handle taxes at the state level, such as the Pay-As-You-Earn (PAYE) tax for employees.

Understanding personal taxes ensures you meet your obligations while avoiding penalties and staying financially organized.

Types of Personal Taxes in Nigeria

1. Pay-As-You-Earn (PAYE)
   This is the most common tax for salaried employees. Your employer deducts it directly from your monthly salary and remits it to the relevant state tax office on your behalf.

2. Self-Assessment Taxes
   If you’re a freelancer, entrepreneur, or business owner, you calculate and pay your own taxes based on your earnings. This system encourages individuals to report their income honestly and stay compliant.

3. Capital Gains Tax (CGT)
   CGT is a tax on profits made from selling assets, such as property, land, or shares. It applies when you make a gain above a certain threshold, ensuring that income from investments is fairly taxed.

4. Other Relevant Taxes

   • Value Added Tax (VAT): A 7.5% tax on goods and services purchased in Nigeria.

   • Stamp Duties: Taxes on certain legal documents, contracts, or transactions.

   • Other state-specific levies: Some states may have additional personal taxes depending on local laws.

Understanding these types of personal taxes helps you plan your finances better, avoid surprises, and ensure you’re compliant with both federal and state laws.

Who Needs to Pay Personal Taxes in Nigeria

In Nigeria, personal taxes apply to anyone earning income above certain thresholds. The main groups include:

1. Salaried Employees
   If you earn a regular salary, your employer deducts Pay-As-You-Earn (PAYE) tax for you. Individuals earning below the tax-free threshold set by their state (usually around ₦300,000 per year) may be exempt.

2. Self-Employed Individuals and Freelancers
   If you earn income independently, you are responsible for self-assessment tax. You must calculate and pay taxes based on your total annual earnings, minus allowable deductions.

3. Business Owners
   Individuals running a business must pay taxes on profits, in addition to other relevant taxes like VAT or stamp duties if applicable.

Exemptions and Thresholds:

• Some states provide tax relief for very low-income earners.

• Certain allowances, pensions, and approved deductions can reduce taxable income.

• Understanding these rules ensures you don’t overpay and stay compliant with both FIRS and your state tax office.

How to File Personal Taxes in Nigeria

1. Register for a Tax Identification Number (TIN)

   • Visit the Federal Inland Revenue Service (FIRS) website or your state tax office.

   • Fill out the registration form with your personal information (name, date of birth, contact details, employment info).

   • Submit valid identification documents, such as your National ID, passport, or driver’s license.

   • Once approved, you’ll receive your TIN, which is required for all tax filings.

2. Filing Your Taxes

   • Salaried Employees: Usually, your employer handles PAYE deductions, but you should confirm your deductions are accurate.

   • Self-Employed / Business Owners:

     • Log in to the FIRS e-tax portal or visit your state tax office.

     • Fill out the tax return form with your total income, allowable deductions, and applicable taxes.

     • Submit the form and pay any tax due online or at the designated bank.

3. Key Deadlines

   • PAYE: Monthly deductions by employers; annual reconciliation usually by March 31.

   • Self-Assessment / Business Tax Returns: Usually due by March 31 of the following year.

   • Missing deadlines can result in penalties and interest, so timely filing is crucial.

Tips to Reduce Your Tax Burden Legally in Nigeria

1. Claim Allowable Deductions

   • Certain expenses can reduce your taxable income. Examples include pension contributions, life insurance premiums, National Housing Fund contributions, and approved charitable donations.

   • Make sure to understand which deductions apply to your situation and keep proper documentation.

2. Keep Accurate Financial Records

   • Track all income, expenses, and receipts throughout the year.

   • Organized records make filing easier, help you claim legitimate deductions, and protect you in case of an audit.

3. Hire Professional Tax Consultants if Necessary

   • Tax laws can be complex, especially for self-employed individuals or business owners.

   • A licensed tax consultant can help optimize your tax position, ensure compliance, and save you from costly mistakes.

Bonus Tip: Stay informed about tax incentives or reliefs offered by FIRS or your state tax office—these can sometimes significantly reduce your payable tax.

Common Personal Tax Mistakes to Avoid in Nigeria

1. Late Filings

   • Missing deadlines for PAYE or self-assessment returns can lead to penalties and interest. Always mark key dates on your calendar.

2. Not Updating TIN Information

   • Changes in your address, employment, or marital status should be reflected in your Tax Identification Number (TIN) records. Failing to update can cause processing delays or errors.

3. Ignoring Small Income Sources

   • Even “minor” earnings, like freelance gigs or rental income, are taxable. Failing to report them can trigger audits or fines.

Tip: Keep records of all income streams, review your filings annually, and stay proactive to avoid unnecessary penalties.

Conclusion

Paying taxes may feel complicated, but understanding personal taxes in Nigeria is essential for staying compliant, avoiding penalties, and managing your finances wisely.

Taking your taxes seriously today protects you from fines tomorrow and empowers you to make smarter financial decisions. Check your tax status online today or consult a tax professional to ensure you’re on the right track. Don’t wait—staying informed and proactive is the best way to secure your financial future.

Frequently Asked Questions

What are the 7 types of taxes in Nigeria?

Nigeria operates a comprehensive tax system that consists of several types of taxes imposed by the three tiers of government — federal, state, and local authorities.

The seven major types of taxes in Nigeria include Companies Income Tax, Personal Income Tax, Value Added Tax (VAT), Petroleum Profits Tax, Education Tax, Capital Gains Tax, and Stamp Duties. Each of these taxes serves a distinct purpose and applies to different categories of individuals or organizations.

The Companies Income Tax (CIT) is levied on the profits of registered companies in Nigeria, excluding those engaged in petroleum operations. The Federal Inland Revenue Service (FIRS) administers this tax, and the current rate is 30% for large companies, 20% for medium-sized firms, and 0% for small businesses with annual turnovers below ₦25 million.

Personal Income Tax (PIT) is imposed on individuals, employees, sole proprietors, and partnerships, with the rates based on income brackets ranging from 7% to 24%. This tax is managed by the State Internal Revenue Services for residents and the FIRS for non-residents.

Value Added Tax (VAT) is an indirect tax charged at 7.5% on goods and services. It is paid by the consumer but collected by businesses, which remit it to the FIRS.

The Petroleum Profits Tax (PPT) applies exclusively to companies engaged in the exploration and production of petroleum resources, with rates as high as 85% depending on the company’s operations and agreements.

Education Tax is charged at 2.5% on the assessable profits of all Nigerian companies. The funds are managed by the Tertiary Education Trust Fund (TETFund) to support higher education development.

Capital Gains Tax (CGT) is imposed at a rate of 10% on the profits made from the sale or transfer of chargeable assets such as land, buildings, or shares. Lastly, Stamp Duties are charges on legal documents like contracts, leases, and property transfers, serving as evidence of official transactions.

Together, these taxes form the backbone of Nigeria’s fiscal policy, providing the government with revenue for public services, infrastructure, and national development. Compliance with these taxes is crucial, as failure to pay can lead to penalties, interest, and legal action.

What do you understand by personal income tax?

Personal Income Tax (PIT) in Nigeria is a compulsory financial charge imposed by law on the income of individuals. It applies to salaries, wages, bonuses, business profits, rents, dividends, and other income sources earned by both residents and non-residents.

The essence of personal income tax is to ensure that every eligible citizen contributes a fair share to the nation’s economic growth. It is one of the most important sources of revenue for state governments and helps fund social amenities, education, healthcare, and infrastructure.

The Personal Income Tax Act (PITA), as amended, governs the assessment and collection of this tax. It specifies how much an individual should pay, who is responsible for payment, and which authority collects it.

The Federal Inland Revenue Service (FIRS) handles the tax for members of the armed forces, foreign service officers, and residents of the Federal Capital Territory, while the State Internal Revenue Service (SIRS) collects from individuals residing in various states.

Personal income tax operates on a progressive scale, meaning higher earners pay more in taxes than lower earners. The first ₦300,000 of taxable income is taxed at 7%, and the rates increase progressively up to 24% for income above ₦3.2 million per year.

Certain reliefs and allowances are provided under the law to reduce the tax burden, such as Consolidated Relief Allowance (CRA), pension contributions, National Housing Fund (NHF) contributions, life insurance premiums, and National Health Insurance Scheme (NHIS) deductions.

For employees, the Pay-As-You-Earn (PAYE) system ensures automatic deduction of personal income tax from their monthly salaries by employers, who then remit it to the relevant tax authorities. For self-employed individuals, the process involves self-assessment and direct payment to the tax authority.

Personal income tax promotes social equity, as it is based on one’s earning capacity. It also enhances government accountability, since taxpayers expect transparency in how their money is spent.

In essence, personal income tax is not just a legal obligation but also a civic duty, representing each citizen’s contribution to the nation’s progress and stability.

How to compute for personal income tax?

Computing personal income tax in Nigeria involves a step-by-step process guided by the Personal Income Tax Act (PITA). The process begins with determining an individual’s total income for a given year, which includes salaries, bonuses, allowances, business profits, rents, dividends, and any other form of earned or unearned income. Once the gross income is known, the next step is to subtract allowable deductions and reliefs to arrive at the taxable income.

The most significant deduction is the Consolidated Relief Allowance (CRA), which is calculated as the higher of ₦200,000 or 1% of gross income, plus 20% of the gross income.

Other deductions include pension contributions, National Housing Fund (NHF) payments, life assurance premiums, and contributions to the National Health Insurance Scheme (NHIS). These deductions are legally recognized and help reduce the taxable amount.

After computing the taxable income, the graduated tax rates are applied as follows:

• The first ₦300,000 is taxed at 7%

• The next ₦300,000 at 11%

• The next ₦500,000 at 15%

• The next ₦500,000 at 19%

• The next ₦1,600,000 at 21%

• Above ₦3,200,000 at 24%

For example, if an individual earns ₦5,000,000 annually, after applying reliefs and deductions, assume the taxable income becomes ₦3,800,000. The tax computation would involve applying the rates progressively up to the last bracket. The total tax payable would then be the sum of all amounts obtained from each band.

It’s essential to note that individuals earning ₦30,000 or less per month (₦360,000 annually) are usually below the taxable threshold after applying the reliefs. Computation accuracy is crucial, and most employers use tax tables or payroll software to automate the calculation process under the PAYE system.

In conclusion, computing personal income tax requires an understanding of taxable income, reliefs, and the correct application of tax bands. It is advisable to keep accurate financial records and consult with tax professionals or use official tax calculators to ensure compliance with Nigerian tax laws.

How much to pay for personal income tax?

The amount an individual pays as personal income tax in Nigeria depends on their total annual income, the applicable deductions, and the progressive tax rates.

The Nigerian tax system is designed to be fair and equitable — individuals with higher earnings pay more tax, while those with lower incomes pay less or none at all.

The computation begins with determining total gross income, which includes wages, allowances, business income, and investment returns.

After determining gross income, deductions such as pension, NHF, NHIS, and life insurance premiums are subtracted, followed by the Consolidated Relief Allowance (CRA).

The resulting figure is the taxable income, on which the graduated tax rates are applied. For instance, if a person’s taxable income is ₦2,000,000, their total tax would be calculated across the different tax bands, starting at 7% and ending at 19%.

The cumulative result represents the total tax payable for that fiscal year. Typically, employees have their tax deducted monthly under the PAYE system, while self-employed individuals are required to pay directly to the state revenue authorities, usually in quarterly installments.

To give a practical example: a worker earning ₦5,000,000 annually might end up paying around ₦400,000–₦600,000 in total tax after reliefs and deductions, depending on their exact benefits and contributions. However, someone earning ₦1,000,000 yearly would pay much less, often below ₦100,000 in total.

The fairness of this system lies in its progressivity. The lowest earners effectively pay no tax if their income falls below the minimum threshold after reliefs, ensuring that taxation does not deepen poverty. Meanwhile, high-income earners contribute more proportionally, aligning with the principle of “ability to pay.”

Therefore, how much one pays in personal income tax depends largely on total income, eligible deductions, and applicable rates. Proper record-keeping and accurate computation ensure fairness and compliance with the Nigerian tax law.

How is personal income tax paid in Nigeria?

Personal income tax in Nigeria can be paid in two main ways — through the Pay-As-You-Earn (PAYE) system for employees and the self-assessment method for self-employed individuals.

The process is governed by the Personal Income Tax Act (PITA) and managed by either the Federal Inland Revenue Service (FIRS) or the State Internal Revenue Service (SIRS), depending on the taxpayer’s category and location.

For employees, the PAYE system ensures automatic monthly deductions from their salaries. Employers are legally required to calculate and remit these deductions to the relevant state revenue authority by the 10th day of the following month.

Each remittance must be accompanied by a schedule showing the details of all employees and the amount of tax deducted. This ensures transparency and accountability.

For self-employed individuals — such as traders, consultants, artisans, and professionals — tax payment is done through the self-assessment system.

They are required to file an annual tax return, compute their income and allowable expenses, determine their tax liability, and make payment directly to the State Internal Revenue Service.

Payments can be made via designated bank branches or through online tax payment platforms like the Joint Tax Board (JTB) portal or the state’s e-tax system.

Upon successful payment, a Tax Clearance Certificate (TCC) is issued. This certificate is vital for various official transactions, such as applying for government contracts, obtaining loans, or registering property.

In summary, paying personal income tax in Nigeria involves accurate record-keeping, timely filing, and prompt remittance. The introduction of digital platforms has simplified the process, reducing paperwork and ensuring convenience.

Whether through PAYE or self-assessment, the key is compliance, as failure to remit taxes can result in penalties, interest charges, or legal sanctions under Nigerian law.

What is the difference between PAYE and personal income tax?

The difference between PAYE (Pay-As-You-Earn) and Personal Income Tax (PIT) lies mainly in the method of collection and the category of taxpayers involved.

While both refer to taxes on an individual’s income, PAYE is a system for deducting and remitting personal income tax from employees’ salaries by their employers. In contrast, Personal Income Tax is the broader tax obligation imposed on all individuals who earn income, including self-employed persons and business owners.

Under the PAYE system, employers act as tax agents for the government. Each month, they calculate the tax due from their employees based on applicable tax rates and reliefs, deduct the amount from their salaries, and remit it to the relevant State Internal Revenue Service (SIRS) by the 10th day of the following month.

This ensures that employees’ taxes are paid automatically without them needing to file returns individually, although they can still request tax clearance or audit reports when needed.

Personal Income Tax, on the other hand, covers both employees and self-employed individuals. Self-employed persons — such as traders, professionals, freelancers, or entrepreneurs — are responsible for assessing and paying their taxes directly to the tax authorities, usually on an annual or quarterly basis. This process is known as self-assessment.

In essence, PAYE is simply a mechanism for collecting personal income tax efficiently from employees, whereas Personal Income Tax is the actual levy imposed on an individual’s total income, regardless of how it is collected.

PAYE streamlines compliance for salaried workers, while the broader PIT framework ensures that everyone earning an income contributes fairly to public revenue.

To summarize, PAYE is a method of paying Personal Income Tax, specifically through employer deduction, while Personal Income Tax is the legal requirement to pay tax on personal earnings.

The PAYE system helps reduce evasion, ensures steady government revenue, and provides convenience for both taxpayers and tax authorities.

What is the basic personal tax?

The term “basic personal tax” refers to the foundational level of income tax payable by an individual after applying the standard reliefs and deductions allowed under the Nigerian tax system.

It essentially represents the minimum amount of tax a person must pay based on their income, following the calculation of Consolidated Relief Allowance (CRA) and other statutory deductions. The concept ensures that taxation remains fair and proportionate to each person’s earning capacity.

In Nigeria, the Personal Income Tax Act (PITA) governs how this basic tax is computed. Every individual is entitled to a Consolidated Relief Allowance of ₦200,000 or 1% of gross income (whichever is higher), plus 20% of the gross income.

After this, other deductions such as pension contributions, life insurance, NHIS, and NHF are subtracted to determine taxable income. The basic personal tax is then calculated using the progressive tax rates, starting at 7% for the first ₦300,000 of taxable income.

For example, a person earning ₦500,000 annually after deductions would likely pay a small basic tax because their taxable income falls within the lowest band.

However, those with higher taxable incomes pay more, as the tax rate increases progressively up to 24%. The basic personal tax represents the lowest bracket of tax that ensures even low-income earners contribute something to national development without being overburdened.

This system promotes fairness and inclusivity, protecting lower-income individuals through reliefs while still ensuring government revenue generation. Essentially, the basic personal tax reflects the principle of equity — everyone pays according to their means, and no one is exempt purely based on employment type.

How to pay personal taxes?

Paying personal taxes in Nigeria involves a clear process that differs slightly for employees and self-employed individuals. The payment system is designed to be efficient, transparent, and accessible, thanks to digitalization efforts by both the Federal Inland Revenue Service (FIRS) and various State Internal Revenue Services (SIRS).

For employees, tax payment happens automatically through the Pay-As-You-Earn (PAYE) system. Employers deduct the correct amount of tax from workers’ monthly salaries, based on the applicable rates, and remit it to the relevant tax authority by the 10th day of the next month.

Employers also provide an annual tax return summary showing total deductions and remittances. Employees can obtain a Tax Clearance Certificate (TCC) to confirm compliance.

For self-employed persons or business owners, tax payment is made through the self-assessment process. The taxpayer calculates total income for the year, deducts allowable expenses and reliefs, and computes the tax due using the statutory rates.

Payments are made to the State Internal Revenue Service (SIRS) of the state of residence, either via bank deposits or through official online platforms like the Joint Tax Board (JTB) e-Tax portal.

The steps for payment typically include:

1. Obtaining a Tax Identification Number (TIN).

2. Filling a tax return form or using an e-filing platform.

3. Calculating tax liability after reliefs.

4. Making payment via designated banks or e-payment portals.

5. Submitting proof of payment and obtaining a Tax Clearance Certificate.

Late payments attract penalties and interest, so timely compliance is crucial. Many states, including Lagos and Rivers, now use digital systems that allow taxpayers to calculate, pay, and generate receipts online.

Ultimately, paying personal taxes in Nigeria is both a legal and civic responsibility. It ensures that citizens contribute to national development, enabling governments to fund public projects, social services, and infrastructure.

What is the minimum income to file taxes in 2025?

The minimum income to file taxes in Nigeria in 2025 depends on the threshold set by the Personal Income Tax Act (PITA) and applicable reliefs. Generally, individuals earning below the tax-exempt threshold after allowable deductions are not required to pay personal income tax.

Currently, the effective threshold is around ₦360,000 per annum (₦30,000 per month), meaning anyone earning below that — after applying the Consolidated Relief Allowance (CRA) and deductions — is effectively exempt from paying tax.

The CRA grants ₦200,000 or 1% of gross income (whichever is higher), plus 20% of gross income as relief. When applied to low-income earners, it often reduces their taxable income to zero, making them exempt.

However, such individuals are still encouraged to file returns for record purposes, as it provides a basis for tax clearance and future verification.

As of 2025, there has been no official announcement of a new minimum filing threshold, but inflationary adjustments may influence future changes. Employees earning salaries above ₦30,000 per month are typically captured under the PAYE scheme automatically.

For self-employed persons, filing remains mandatory even if no tax is payable, to maintain compliance with Nigerian tax laws.

Filing taxes, even when exempt, ensures that individuals are part of the formal tax system. It also provides access to benefits like tax clearance certificates, business registration, and financial credibility.

Therefore, the minimum income to file taxes in 2025 remains ₦360,000 per year in practical terms, but filing is recommended for all income earners regardless of exemption.

What income is exempt from tax?

In Nigeria, certain types of income are exempt from personal income tax under the Personal Income Tax Act (PITA).

These exemptions exist to promote fairness, encourage savings, and support specific social and economic objectives. Understanding these exemptions helps taxpayers reduce their tax burden legally and ensures accurate computation of taxable income.

Some of the most common tax-exempt incomes include:

1. Gratuities and retirement benefits: Payments made to employees upon retirement or termination are tax-free, provided they are not part of a recurring pension.

2. Pension contributions: Contributions made by employers or employees to approved pension funds are fully exempt from tax, both at the contribution and accumulation stages.

3. Life insurance premiums: Premiums paid on life assurance policies for oneself or dependents are tax-deductible and exempt.

4. Dividends and interests from government securities: Interests or dividends earned from Nigerian government bonds, treasury bills, or savings bonds are tax-free.

5. Compensation for loss of employment: Payments received as compensation or redundancy packages are exempt, provided they are not disguised as regular income.

6. Scholarships, educational grants, and bursaries: Any income received for educational purposes, whether from government, institutions, or private organizations, is exempt.

7. Reimbursements and allowances used for official duties: Allowances like transport, housing, or meal allowances are exempt if they are strictly for business purposes and properly accounted for.

These exemptions reduce the taxable portion of income, ensuring that only genuine earnings or profits are taxed. They also serve to promote long-term savings, support retirees, and encourage investment in government-backed instruments.

However, it’s important to note that if exempt income is mixed with taxable income without proper documentation, tax authorities may treat the entire sum as taxable. Therefore, taxpayers must maintain accurate records and documentation for all exempt sources.

In essence, tax-exempt income in Nigeria reflects the government’s commitment to fairness and economic growth. It provides relief to specific groups while encouraging financial responsibility and social welfare.

What is the formula for calculating income tax with example?

The formula for calculating income tax in Nigeria is based on a progressive tax system as outlined in the Personal Income Tax Act (PITA). The general formula is:

Tax Payable = (Gross Income – Allowable Deductions – Reliefs) × Applicable Tax Rates

To break it down:

1. Gross Income includes all earnings such as salaries, bonuses, business profits, rent, interest, and dividends.

2. Allowable Deductions are statutory contributions like pension, National Housing Fund (NHF), National Health Insurance Scheme (NHIS), and life insurance premiums.

3. Reliefs include the Consolidated Relief Allowance (CRA), which is ₦200,000 or 1% of gross income (whichever is higher), plus 20% of gross income.

Once the taxable income (the remaining income after deductions and reliefs) is known, the applicable progressive tax rates are applied as follows:

• First ₦300,000 at 7%

• Next ₦300,000 at 11%

• Next ₦500,000 at 15%

• Next ₦500,000 at 19%

• Next ₦1,600,000 at 21%

• Above ₦3,200,000 at 24%

Example:
Assume an individual earns ₦5,000,000 annually.

• CRA = ₦200,000 + (20% × ₦5,000,000) = ₦1,200,000

• Pension (8% of salary) = ₦400,000

• Total deductions = ₦1,600,000

• Taxable Income = ₦5,000,000 – ₦1,600,000 = ₦3,400,000

Now, apply the tax rates:

• First ₦300,000 @ 7% = ₦21,000

• Next ₦300,000 @ 11% = ₦33,000

• Next ₦500,000 @ 15% = ₦75,000

• Next ₦500,000 @ 19% = ₦95,000

• Remaining ₦1,800,000 @ 21% = ₦378,000
  Total Tax Payable = ₦602,000

Thus, this individual pays ₦602,000 in personal income tax for the year. The effective tax rate (₦602,000 ÷ ₦5,000,000) is approximately 12%, showing how reliefs and progressive rates help reduce the overall tax burden.

This structure ensures fairness and affordability — higher earners contribute more, while lower earners enjoy protection through deductions and allowances.

How do I calculate my personal income?

Calculating your personal income involves determining your total earnings within a tax year and applying all eligible deductions and reliefs to find your taxable income. The process is essential for both employees and self-employed individuals to ensure correct tax payment under the Personal Income Tax Act (PITA).

The steps are as follows:

1. Determine Total Gross Income: Add up all sources of income, including salaries, business profits, rent, interest, commissions, dividends, bonuses, and allowances.

2. Subtract Statutory Deductions: Remove mandatory deductions such as pension (8% of basic, housing, and transport), National Housing Fund (2.5%), National Health Insurance Scheme (NHIS), and life insurance premiums.

3. Apply Reliefs: Compute the Consolidated Relief Allowance (CRA), which is ₦200,000 or 1% of gross income (whichever is higher), plus 20% of gross income.

4. Arrive at Taxable Income: Subtract all deductions and reliefs from the gross income.

5. Apply Tax Rates: Use the graduated rates (7%–24%) to compute your annual tax liability.

Example:
Suppose you earn ₦3,000,000 per year, and your total deductions (pension, NHF, insurance) amount to ₦300,000.

• CRA = ₦200,000 + (20% × ₦3,000,000) = ₦800,000

• Taxable Income = ₦3,000,000 – (₦300,000 + ₦800,000) = ₦1,900,000

Now apply the rates:

• ₦300,000 @ 7% = ₦21,000

• ₦300,000 @ 11% = ₦33,000

• ₦500,000 @ 15% = ₦75,000

• ₦500,000 @ 19% = ₦95,000

• ₦300,000 @ 21% = ₦63,000
  Total Tax Payable = ₦287,000

Therefore, your annual personal income tax would be ₦287,000.

Calculating your income accurately ensures compliance, helps with budgeting, and protects you from overpayment or underpayment penalties. It’s advisable to keep proper records of income and deductions, or use official tax calculators and guidance from your State Internal Revenue Service.

What is the minimum salary to pay tax in Nigeria?

The minimum salary to pay tax in Nigeria is determined by the income threshold established under the Personal Income Tax Act (PITA) and the effect of applicable reliefs and deductions. Practically, the minimum taxable income is around ₦360,000 per year, equivalent to ₦30,000 per month.

However, due to the Consolidated Relief Allowance (CRA) and other statutory deductions, most individuals earning at this level are effectively exempt from paying personal income tax.

Under Nigerian tax law, every taxpayer enjoys a CRA of ₦200,000 or 1% of gross income (whichever is higher), plus 20% of gross income. For someone earning ₦360,000 annually, this allowance effectively wipes out the taxable portion of their income, meaning they owe no tax.

For example, if a worker earns ₦30,000 monthly:

• Annual gross income = ₦360,000

• CRA = ₦200,000 + (20% × ₦360,000) = ₦272,000

• Taxable income = ₦360,000 – ₦272,000 = ₦88,000

When applied to the lowest tax rate of 7%, the resulting annual tax would be ₦6,160. However, considering other deductions such as pension or NHF, this amount often reduces to zero.

This approach ensures that very low-income earners are not overburdened by taxation. As incomes rise beyond ₦400,000 annually, individuals gradually move into taxable brackets under Nigeria’s progressive system.

The policy aligns with social justice principles by protecting low-income workers while ensuring higher earners contribute more to public finances. Therefore, in practice, anyone earning above ₦360,000 per year — after deductions and reliefs — may begin to pay personal income tax.

How to reduce personal income tax in Nigeria?

Reducing personal income tax in Nigeria legally involves maximizing allowable deductions, reliefs, and exemptions as provided by the Personal Income Tax Act (PITA). Tax planning and compliance help minimize liabilities without violating the law.

Here are effective ways to reduce your tax burden:

1. Claim all allowable reliefs: Ensure you take full advantage of the Consolidated Relief Allowance (CRA) — ₦200,000 or 1% of gross income (whichever is higher) plus 20% of gross income. This significantly lowers taxable income.

2. Contribute to pension schemes: Employee contributions to approved pension funds are tax-deductible. By saving for retirement, you simultaneously reduce your taxable income.

3. Participate in the National Housing Fund (NHF): Contributions to the NHF are deductible, and interest from such contributions is tax-free.

4. Pay life insurance premiums: Premiums paid on life assurance policies for yourself or dependents qualify for full tax deductions.

5. Use approved medical and health contributions: Payments to the National Health Insurance Scheme (NHIS) are deductible, helping reduce taxable income.

6. Keep proper records of allowable business expenses: For self-employed individuals, only profits after allowable expenses are taxable. Deductions like rent, utilities, and professional fees can be claimed if properly documented.

7. Invest in tax-exempt instruments: Interest earned from Federal Government bonds, savings bonds, or treasury bills is exempt from tax.

8. File returns early: Early filing helps avoid penalties and gives room to claim all deductions accurately before submission.

9. Engage in tax planning: Consulting tax professionals or using accounting software ensures all legal deductions are applied efficiently.

By using these legal avenues, individuals can reduce their tax liabilities while remaining compliant. Tax reduction is not about evasion but about smart financial management and taking advantage of lawful reliefs provided by the Nigerian tax framework.

Which income is not taxable in Nigeria?

Certain incomes in Nigeria are not taxable under the Personal Income Tax Act (PITA), as they are classified as exempt. These exemptions promote fairness and encourage investment, savings, and social welfare.

Examples of non-taxable income include:

• Pension and retirement benefits: Lump sums received upon retirement or as gratuity are tax-free.

• Life insurance proceeds: Benefits paid from life assurance policies are exempt.

• Interests and dividends from government securities: Earnings from treasury bills, savings bonds, and government bonds are exempt from taxation.

• Scholarships and educational grants: Any amount received for academic purposes is not taxable.

• Compensation for loss of employment: Severance pay or redundancy benefits are exempt, provided they are genuine compensation and not disguised income.

• Reimbursements and duty-based allowances: Allowances for travel, accommodation, or meals used strictly for official purposes are exempt.

• Gifts and inheritance: Gifts received without commercial value are generally not taxable, though corporate gifts may have implications.

These exemptions help reduce the overall tax burden and encourage economic stability. However, documentation is crucial. Tax authorities require proof that such incomes meet exemption criteria; otherwise, they may be treated as taxable.

Non-taxable incomes support individuals’ welfare and motivate savings and investment in safe instruments like government bonds. The system ensures fairness by taxing only active earnings while exempting social or compensatory benefits.

Who should pay personal income tax?

Personal income tax in Nigeria is payable by every individual who earns income within or derives income from Nigeria. This includes residents, non-residents, employees, self-employed persons, professionals, and business owners.

The obligation applies to anyone who benefits financially from work, trade, investments, or services in the country.

Under the Personal Income Tax Act (PITA), the following categories are required to pay:

1. Salaried employees: Through the PAYE system, employers deduct and remit taxes monthly.

2. Self-employed individuals: Traders, freelancers, artisans, and professionals must assess and pay taxes directly to the State Internal Revenue Service (SIRS).

3. Company directors and partners: They pay tax on remuneration, profit shares, and benefits received.

4. Landlords and investors: Those earning rental income, dividends, or interest within Nigeria are subject to tax.

5. Non-residents: If they earn income from Nigeria (e.g., consulting or contracts), they must pay tax on that Nigerian-sourced income.

Exemptions exist for low-income earners whose income, after reliefs, falls below the taxable threshold. However, filing tax returns is still mandatory for record purposes.

Every taxpayer must obtain a Tax Identification Number (TIN) to facilitate compliance and ensure proper remittance. Failure to pay or file returns can lead to penalties, interest, or prosecution.

In essence, personal income tax applies to all income earners, reinforcing equality and shared responsibility in nation-building. It is both a legal duty and a civic contribution to Nigeria’s development.

How can I reduce my income tax?

Reducing your income tax in Nigeria legally involves using all available tax reliefs, deductions, and allowances permitted under the Personal Income Tax Act (PITA).

The goal is not to evade taxes but to optimize your financial situation within the law. Tax planning allows you to take advantage of benefits the government provides to encourage savings, investments, and responsible financial behavior.

Here are effective ways to minimize your tax burden:

1. Maximize your Consolidated Relief Allowance (CRA): Every taxpayer is entitled to ₦200,000 or 1% of gross income (whichever is higher), plus 20% of gross income. This significantly reduces taxable income.

2. Contribute to an approved pension scheme: Employee pension contributions (usually 8% of salary) are fully deductible. They reduce your taxable income while securing your retirement.

3. Pay into the National Housing Fund (NHF): Contributions to the NHF (2.5% of income) are tax-deductible, and the interest earned is tax-free.

4. Take out life insurance policies: Premiums paid on life assurance for yourself or dependents qualify for tax reliefs.

5. Claim allowable business expenses: For self-employed individuals, only profits after legitimate business expenses are taxable. Keep proper receipts for expenses like rent, salaries, and utilities.

6. Invest in tax-exempt securities: Interest or dividends from government bonds and treasury bills are not taxable.

7. Donate to approved charities: Donations to government-recognized institutions can be deducted from your taxable income.

8. Maintain accurate financial records: Proper documentation ensures you claim all reliefs and deductions without errors.

By following these steps, you can reduce your taxable income, stay compliant, and avoid penalties. The key is to use lawful deductions effectively. Strategic planning with a tax consultant can further optimize your finances while keeping your tax burden to a minimum.

Do self-employed people pay tax in Nigeria?

Yes, self-employed individuals in Nigeria are legally required to pay personal income tax. This group includes traders, freelancers, artisans, consultants, and business owners.

Their taxes are governed by the Personal Income Tax Act (PITA) and are collected by the State Internal Revenue Service (SIRS) where they reside.

Unlike salaried employees whose taxes are deducted automatically under the Pay-As-You-Earn (PAYE) system, self-employed people must assess and pay their taxes directly.

This process is known as the self-assessment method. It involves estimating total annual income, deducting allowable expenses, applying statutory reliefs, and paying the resulting amount to the tax authority.

Steps for self-employed taxpayers:

1. Register for a Tax Identification Number (TIN).

2. Calculate annual income from all business sources.

3. Deduct allowable expenses and reliefs like pension, NHF, and Consolidated Relief Allowance (CRA).

4. Apply progressive tax rates (7%–24%) based on taxable income.

5. File annual tax returns and make payments either quarterly or annually.

Failure to pay taxes can result in penalties, interest charges, or even legal prosecution under Nigerian tax laws. However, the government also offers incentives such as access to loans and contracts for compliant taxpayers.

In summary, self-employed individuals are not exempt from tax; rather, they have the responsibility to compute and remit their taxes independently. Proper record-keeping and timely filing ensure compliance and help avoid unnecessary penalties.

What is the minimum personal tax allowance?

The minimum personal tax allowance in Nigeria refers to the statutory amount of income excluded from taxation under the Personal Income Tax Act (PITA). It ensures that every taxpayer keeps a portion of their income untaxed, providing relief and promoting fairness.

The key component of this allowance is the Consolidated Relief Allowance (CRA), which is the higher of ₦200,000 or 1% of gross income, plus an additional 20% of gross income. This allowance is available to all taxpayers — whether employed or self-employed — before determining taxable income.

For example, if an individual earns ₦2,000,000 per year:

• CRA = ₦200,000 + (20% × ₦2,000,000) = ₦600,000

• This ₦600,000 is deducted from total income, reducing the taxable amount.

The CRA replaced older reliefs like housing, children, and dependent allowances, simplifying the tax system. Besides the CRA, additional deductions are allowed for pension contributions, NHF, life assurance premiums, and NHIS payments.

Effectively, this allowance ensures that low-income earners — such as those making ₦30,000 monthly — may end up paying little or no tax after applying these deductions. The system is designed to prevent excessive taxation and encourage savings and investment.

Therefore, the minimum personal tax allowance serves as a form of income protection, helping Nigerians retain more of their earnings while contributing fairly to national development.

How do I claim personal tax allowance?

To claim a personal tax allowance in Nigeria, you must be a registered taxpayer with a valid Tax Identification Number (TIN) and provide accurate details of your income and reliefs when filing your annual returns.

The Consolidated Relief Allowance (CRA) is not automatically granted unless your tax records reflect the correct income and deduction information.

Here’s how to claim it:

1. Ensure proper registration: Obtain a TIN from your State Internal Revenue Service (SIRS) or Federal Inland Revenue Service (FIRS) office.

2. Maintain documentation: Keep payslips, pension statements, NHF and NHIS contribution records, and life insurance receipts.

3. File annual tax returns: Submit your income and deduction details through your employer (for PAYE) or directly (if self-employed).

4. Declare all statutory deductions: Include pension, NHF, NHIS, and other recognized reliefs to reduce taxable income.

5. Verify computation: Ensure that the CRA — ₦200,000 or 1% of gross income (whichever is higher), plus 20% of gross income — is correctly applied by the tax authority.

6. Request confirmation: After filing, you can request a Tax Clearance Certificate (TCC) as proof that your allowance and tax have been correctly processed.

Employers usually handle this process automatically for employees under PAYE, while self-employed individuals must manually include it in their self-assessment filings.

Claiming your personal tax allowance ensures you don’t overpay taxes and receive the benefits entitled to you by law. It’s advisable to double-check every tax computation, as omission of reliefs can lead to higher tax deductions than necessary.

What is personal tax in Nigeria?

Personal tax in Nigeria, formally known as Personal Income Tax (PIT), is a levy imposed on the income of individuals by the government. It applies to earnings such as salaries, business profits, rents, interests, and dividends.

Governed by the Personal Income Tax Act (PITA), it ensures that individuals contribute their fair share to public revenue, enabling the government to fund infrastructure, healthcare, education, and other social services.

There are two main collection systems: the Pay-As-You-Earn (PAYE) system for employees and self-assessment for self-employed individuals.

Under PAYE, employers deduct taxes from employees’ salaries monthly and remit them to the State Internal Revenue Service (SIRS). Self-employed individuals, however, must calculate, declare, and pay taxes themselves.

The tax operates on a progressive rate structure, meaning higher incomes attract higher rates. The current rates range from 7% for the first ₦300,000 of taxable income to 24% for income exceeding ₦3.2 million.

All taxpayers benefit from reliefs and deductions, such as the Consolidated Relief Allowance (CRA), pension contributions, and insurance premiums.

Personal tax in Nigeria is both a legal and civic duty. It promotes accountability, since citizens who pay taxes expect transparency and responsible governance. Failure to pay can result in fines, interest, and denial of essential documents like a Tax Clearance Certificate (TCC).

Ultimately, personal income tax is essential for national development, ensuring fairness and equitable contribution from every income earner.

What happens if I don’t file my taxes?

Failing to file taxes in Nigeria is a serious offense under the Personal Income Tax Act (PITA) and the Federal Inland Revenue Service (Establishment) Act. Individuals who do not file or pay taxes face financial penalties, legal consequences, and restrictions on certain privileges.

The main consequences include:

1. Penalties and interest: Tax authorities impose fines and daily interest on unpaid taxes. Under PITA, failure to file returns can attract a penalty of ₦5,000 for individuals and ₦25,000 for companies, plus ₦100 for each additional day of default.

2. Legal prosecution: Persistent defaulters can be taken to court and fined or imprisoned.

3. Loss of Tax Clearance Certificate (TCC): Without filing, you cannot obtain a TCC, which is necessary for government contracts, loans, business registration, or visa processing.

4. Audits and investigations: Non-filers are more likely to be audited. Authorities may assess your income using third-party data, often leading to higher estimated taxes.

5. Restricted business opportunities: Many organizations require proof of tax compliance before partnership or contract agreements.

Filing your taxes, even when you owe nothing, demonstrates compliance and helps build your financial record. Late filing can still be remedied through voluntary disclosure programs offered by some states.

In summary, failing to file taxes not only leads to financial and legal troubles but also limits access to important personal and business opportunities.

How much do I earn before tax?

“Earnings before tax” refers to the total income an individual or business earns before any taxes are deducted. For employees, it represents the gross salary — including basic salary, housing, transport allowances, and other benefits — before PAYE deductions.

For self-employed individuals, it means the total revenue generated from business activities before deducting allowable expenses and taxes.

For example, if your monthly salary is ₦500,000 and you receive additional allowances of ₦100,000, your total earnings before tax amount to ₦600,000. From this, deductions such as pension, NHF, NHIS, and life insurance are subtracted before applying income tax rates.

Understanding your income before tax helps you estimate your potential tax liability and plan your finances better. Employers often include this figure on pay slips to show transparency. For businesses, “Earnings Before Tax (EBT)” is an accounting metric that indicates profitability before the impact of tax obligations.

In Nigeria, knowing your income before tax is crucial for determining your taxable income and ensuring proper application of reliefs and deductions. It helps maintain financial discipline and prevents disputes with tax authorities.

How do I avoid a tax audit?

Avoiding a tax audit in Nigeria starts with one principle: complete honesty and accuracy in tax reporting. The Federal Inland Revenue Service (FIRS) and the various State Internal Revenue Services (SIRS) conduct audits to verify if taxpayers are compliant with tax laws.

These audits become necessary when inconsistencies or red flags appear in returns. To minimize your chances of being audited, you must maintain transparency and proper documentation.

The first step is to file your tax returns on time. Late or missing returns automatically attract attention. Submitting all relevant forms, income statements, and supporting documents before the deadline demonstrates compliance and reduces the likelihood of scrutiny.

Second, ensure all reported figures are consistent. If your declared income does not match your lifestyle, bank deposits, or business turnover, the authorities might investigate further. For example, declaring a low annual income while owning luxury assets can trigger an audit.

Third, keep organized records. Maintain receipts, invoices, payroll records, and bank statements for at least six years. This will help you respond confidently if an audit occurs. Proper bookkeeping shows that your tax submissions are credible and supported by verifiable evidence.

Fourth, avoid excessive or unjustified deductions. While you are entitled to legitimate deductions such as pension contributions, life insurance premiums, or business expenses, exaggerating or fabricating them is considered tax evasion. Authorities cross-check these claims carefully.

Fifth, engage a qualified tax consultant or accountant. These professionals understand the Nigerian tax system, know how to interpret the Personal Income Tax Act (PITA), and ensure your filings follow the correct procedures. They also help identify legal ways to reduce taxes while staying compliant.

Lastly, avoid suspicious financial activities. Large unexplained cash transactions, irregular banking behavior, or frequent foreign transfers can draw attention. Always ensure all income sources are declared and traceable.

By keeping accurate records, declaring all income sources, and following statutory filing rules, you can significantly reduce your audit risk. Remember: the goal is not to hide from the tax authorities but to maintain transparency that prevents unnecessary investigations.

What is the maximum I can earn without paying taxes?

The amount a person can earn in Nigeria without paying taxes depends on the tax-free threshold set by the Personal Income Tax Act (PITA).

This threshold is calculated based on the Consolidated Relief Allowance (CRA) and other allowable deductions such as pension, National Housing Fund (NHF), and life insurance premiums.

Under the CRA rule, every taxpayer enjoys a relief equal to the higher of ₦200,000 or 1% of gross income, plus an additional 20% of gross income. After applying this relief, any remaining amount is taxable according to the progressive tax rates (7%–24%).

Let’s use an example:
If an individual earns ₦350,000 per year:

• CRA = ₦200,000 + (20% × ₦350,000) = ₦270,000

• Taxable income = ₦350,000 − ₦270,000 = ₦80,000
  Since ₦80,000 is below the ₦300,000 minimum taxable band (7% rate), the person effectively pays no tax.

In practice, this means that anyone earning below ₦30,000 monthly (₦360,000 yearly) is unlikely to pay income tax after all reliefs are applied. However, those with higher earnings will pay progressively more as income increases.

It’s important to note that tax-free income varies slightly across states because state tax authorities interpret reliefs differently. Nonetheless, the CRA ensures that low-income earners remain protected from excessive taxation, allowing them to maintain a basic standard of living.

In conclusion, while there is no fixed “maximum” amount exempt from tax, applying the CRA and statutory deductions ensures that lower-income individuals — typically those earning under ₦360,000 annually — pay little to no personal income tax in Nigeria.

What kind of income is not taxable?

Not all income in Nigeria is subject to personal income tax. The Personal Income Tax Act (PITA) identifies several types of income that are specifically exempt to encourage economic growth, savings, and investment.

Understanding these exemptions helps individuals and businesses plan their finances effectively while remaining compliant.

Some major non-taxable income types include:

1. Interest on government securities: Earnings from federal or state government bonds, treasury bills, and savings certificates are tax-free. This exemption encourages investment in national development instruments.

2. Dividends from pioneer industries: Companies granted pioneer status under the Industrial Development (Income Tax Relief) Act enjoy tax holidays, and dividends from these companies are exempt during the relief period.

3. Income from gratuities: Gratuities received on retirement or termination of employment are not taxable.

4. Gifts and inheritances: Personal gifts, donations, and inheritances are not considered taxable income unless tied to business operations.

5. Refunds of pension contributions: When properly managed under an approved pension scheme, these are exempt from tax.

6. Scholarships and educational grants: These are fully exempt to promote learning and skill development.

7. Income from foreign sources (in certain cases): Nigerians working abroad and remitting income that has already been taxed may qualify for partial or full exemption under double taxation agreements.

Additionally, allowances like housing and transport may be partially exempt depending on how they’re structured under PAYE.

These exemptions aim to balance equity and economic growth. They prevent over-taxation, promote savings, and reward contributions to national development. By investing in tax-exempt instruments or claiming qualified reliefs, individuals can legitimately lower their tax liabilities.

What happens if you don’t declare income?

Failure to declare all sources of income in Nigeria is considered tax evasion, a serious offense punishable under the Personal Income Tax Act (PITA) and FIRS laws. Declaring income honestly ensures fairness and allows the government to assess accurate tax liabilities.

When a taxpayer fails to declare income — such as side businesses, freelance jobs, rent, or investment gains — tax authorities may discover it through data matching, bank audits, or third-party reports. Once uncovered, the taxpayer faces severe consequences, including:

1. Back taxes and interest charges: Authorities will reassess your returns and demand payment for all undeclared years, including accumulated interest.

2. Penalties: A fine of ₦5,000 for individuals (or ₦25,000 for companies), plus ₦100 for every day of continued default, applies under PITA.

3. Criminal prosecution: In cases of deliberate concealment, offenders may be prosecuted and imprisoned for up to three years.

4. Denial of Tax Clearance Certificate (TCC): Without declaring full income, taxpayers cannot obtain a TCC, blocking access to loans, contracts, or government benefits.

5. Audit and investigation: The FIRS or SIRS may conduct a full audit, examining bank accounts and assets for unreported income.

Declaring all income streams — from salaries and consulting work to rental or investment earnings — is essential to remain compliant. Nigerian tax authorities are increasingly using technology and data sharing to detect non-disclosure.

The best approach is voluntary disclosure. If you realize you’ve underreported income, contact your tax office to correct it. Most authorities offer leniency when taxpayers come forward voluntarily before being audited. Transparency ensures peace of mind and protects against financial and legal risks.

What is the basic salary?

Basic salary refers to the fixed portion of an employee’s total earnings, agreed upon by the employer and employee, before adding any allowances, bonuses, or benefits. It is the foundation upon which other components of the salary structure — such as housing, transport, medical, and utility allowances — are calculated.

In Nigeria, basic salary is a major determinant for statutory deductions like pension contributions, National Housing Fund (NHF), and tax computations. Typically, employers allocate between 40% and 60% of an employee’s total pay as basic salary, while the rest covers allowances.

For instance, if an employee’s total monthly pay is ₦300,000, their basic salary might be ₦150,000, with the remaining ₦150,000 split among allowances. Taxes are calculated based on the total gross income, but understanding the basic salary helps in identifying the portion subject to mandatory deductions.

Employers must ensure that basic salary meets or exceeds the national minimum wage, which is currently ₦30,000 monthly. However, most professional or corporate jobs offer higher basic salaries depending on industry standards, qualifications, and experience.

While basic salary alone doesn’t reflect an employee’s total earnings, it provides job security and consistency. Allowances may vary, but the basic salary remains fixed, ensuring stable income and predictable tax deductions.

In summary, the basic salary is the core element of compensation in Nigeria’s wage system. It influences taxes, benefits, and employee entitlements, forming the foundation of both payroll and financial planning.

How much tax do I pay?

The amount of tax you pay in Nigeria depends on your taxable income, which is your total income after deducting all applicable reliefs and deductions under the Personal Income Tax Act (PITA). Nigeria uses a progressive tax rate, meaning higher income earners pay more as their income increases.

Here’s the breakdown of current tax rates:

• First ₦300,000 – 7%

• Next ₦300,000 – 11%

• Next ₦500,000 – 15%

• Next ₦500,000 – 19%

• Next ₦1,600,000 – 21%

• Above ₦3,200,000 – 24%

Before applying these rates, taxpayers receive a Consolidated Relief Allowance (CRA) equal to ₦200,000 or 1% of gross income (whichever is higher), plus 20% of gross income. Additionally, deductions for pension, NHF, NHIS, and life insurance premiums reduce taxable income further.

For example, if you earn ₦3,000,000 annually:

• CRA = ₦200,000 + (20% × ₦3,000,000) = ₦800,000

• Taxable income = ₦3,000,000 − ₦800,000 = ₦2,200,000
  Tax payable = (7% × 300,000) + (11% × 300,000) + (15% × 500,000) + (19% × 500,000) + (21% × 600,000)
  = ₦21,000 + ₦33,000 + ₦75,000 + ₦95,000 + ₦126,000 = ₦350,000 per year

This means a person earning ₦3,000,000 annually would pay roughly ₦350,000 in personal income tax, depending on their additional deductions.

In essence, the Nigerian system ensures fairness — low-income earners pay less, and only those with higher earnings bear more responsibility. Proper filing ensures you only pay what you owe, not more.

How is income tax paid?

Income tax in Nigeria is paid through two primary systems: the Pay-As-You-Earn (PAYE) system for salaried employees and the self-assessment system for self-employed individuals or business owners. Both systems ensure that individuals contribute their fair share to national development through transparent and accountable tax processes.

Under the PAYE system, employers are responsible for deducting personal income tax directly from employees’ salaries every month before payment. This deducted tax is then remitted to the appropriate State Internal Revenue Service (SIRS), depending on where the employee resides.

For example, if you work in Lagos but live in Ogun State, your tax is paid to the Ogun State Internal Revenue Service. Employers must also file monthly and annual returns to confirm all remittances.

For self-employed individuals or professionals such as freelancers, artisans, or traders, the process is different. They are required to compute their income, claim allowable deductions and reliefs, and then pay tax under the self-assessment method.

Payments can be made online via state revenue portals, directly at tax offices, or through designated banks. These individuals are also expected to file annual tax returns between January 1st and March 31st each year.

Payment methods include:

1. Electronic payment platforms: Many states now provide e-tax systems that allow easy tax payments.

2. Bank deposits: Taxpayers can pay through banks authorized by the FIRS or SIRS.

3. Direct debit: Some employers or high-income earners set up direct deductions from their accounts.

After payment, a Tax Clearance Certificate (TCC) is issued as proof of compliance. This certificate is required for government contracts, visa applications, and loan approvals.

In summary, income tax is paid through systematic deductions for employees and voluntary assessments for self-employed individuals. Staying compliant by paying regularly not only fulfills a civic duty but also prevents penalties and fosters access to various economic benefits.

What is included in personal income?

Personal income in Nigeria includes all earnings, monetary or otherwise, received by an individual from various sources within and outside the country. The Personal Income Tax Act (PITA) defines “income” broadly to ensure that all financial gains are taxed fairly and equitably.

The main components of personal income include:

1. Employment income: Salaries, wages, bonuses, commissions, and other benefits derived from employment.

2. Allowances: Housing, transportation, medical, utility, and meal allowances are included, though some may be partially exempt depending on tax regulations.

3. Business or professional income: Profits from trade, freelancing, consulting, or any self-employed activity.

4. Rent and property income: Money earned from leasing land, buildings, or other property.

5. Dividends and interests: Returns from investments, savings, and shares.

6. Royalties: Income received from intellectual property such as books, music, or inventions.

7. Pensions and gratuities: While gratuities are exempt, certain pensions and annuities may still be taxable depending on the scheme.

Personal income covers both cash and non-cash benefits. For instance, if your employer provides housing or a company car, the monetary value of those benefits may be included in your taxable income.

However, certain income types are exempt, including scholarships, gifts, life insurance benefits, and interests from government bonds. The key distinction is that any regular, recurring financial gain linked to employment, business, or investment is taxable.

In conclusion, personal income encompasses all forms of earnings and benefits received by an individual, minus the allowable exemptions. Understanding what qualifies as personal income ensures accurate tax filing and compliance with Nigerian tax laws.

How do I calculate how much I pay myself?

Calculating how much to pay yourself, especially if you are self-employed or own a small business, requires a balance between profitability, sustainability, and tax compliance.

Unlike salaried employees, business owners have flexibility in determining their income but must remain disciplined to maintain cash flow and pay taxes appropriately.

To start, determine your net business income. This involves calculating your total revenue and subtracting all legitimate business expenses such as rent, salaries, utilities, raw materials, marketing, and professional fees. The remaining profit represents your earnings before tax.

Next, set aside funds for taxes. Nigeria uses a progressive tax rate (7% to 24%) applied to taxable income after deducting reliefs like the Consolidated Relief Allowance (CRA), pension contributions, and insurance premiums.

For instance:
If your business earns ₦5,000,000 annually and your deductible expenses total ₦2,000,000, your net income is ₦3,000,000.

• CRA = ₦200,000 + (20% × ₦3,000,000) = ₦800,000

• Taxable income = ₦3,000,000 − ₦800,000 = ₦2,200,000

• Tax payable ≈ ₦350,000 (based on Nigeria’s progressive rates).

Once taxes and operating costs are accounted for, you can determine a reasonable personal draw or salary. A good practice is to pay yourself a fixed monthly amount (for example, 30–40% of your net profit) while keeping the rest in the business for growth or emergencies.

Remember to separate personal and business accounts for accountability and easy record-keeping. Also, consider pension or savings contributions to secure your financial future.

In essence, calculating how much you pay yourself involves determining your net profit, accounting for taxes, and establishing a structured withdrawal system that supports both your livelihood and business continuity.

How much of my income is taxable?

In Nigeria, the portion of your income that is taxable depends on your gross income, minus all allowable reliefs and deductions as provided under the Personal Income Tax Act (PITA).

The taxable portion is what remains after subtracting the Consolidated Relief Allowance (CRA), pension, NHF, life assurance, and other statutory deductions.

Here’s how it works:

1. Determine gross income: Include all earnings such as salary, bonuses, rent, dividends, and business income.

2. Apply the CRA: ₦200,000 or 1% of gross income (whichever is higher) plus 20% of gross income.

3. Deduct pension and other reliefs: Approved contributions to pension, NHF, or NHIS are subtracted.

4. Calculate taxable income: The remaining amount is subject to Nigeria’s progressive tax rates.

For example, if your gross annual income is ₦2,500,000:

• CRA = ₦200,000 + (20% × ₦2,500,000) = ₦700,000

• Taxable income = ₦2,500,000 − ₦700,000 = ₦1,800,000

This ₦1,800,000 is what you’ll be taxed on, using the rates from 7% to 24%.

Generally, depending on deductions, about 60–80% of total income may be taxable for middle-income earners. Low-income earners, especially those earning ₦30,000 monthly, often pay little or no tax due to high relief allowances.

In summary, the taxable portion of your income is the balance left after applying all permitted deductions. Understanding this ensures you pay only what you owe and take advantage of legal reliefs.

How much tax do you have to pay on self-employed income?

Self-employed individuals in Nigeria must pay personal income tax on their assessed profits under the self-assessment system. Their income tax liability is calculated using the same progressive rates applied to salaried workers — from 7% to 24% — but they must compute and remit taxes themselves.

To determine how much tax you owe:

1. Calculate your total business income for the year.

2. Deduct allowable expenses such as rent, supplies, salaries, and utilities.

3. Apply reliefs and deductions: Include CRA, pension contributions, and NHF payments.

4. Compute taxable income: This is the remaining profit after deductions.

5. Apply the tax rate: Use Nigeria’s progressive tax bands to calculate payable tax.

For instance, if you earn ₦4,000,000 in revenue and your business expenses total ₦1,500,000, your net income is ₦2,500,000.

• CRA = ₦200,000 + (20% × ₦2,500,000) = ₦700,000

• Taxable income = ₦2,500,000 − ₦700,000 = ₦1,800,000
  Your tax would then be:
  ₦21,000 + ₦33,000 + ₦75,000 + ₦95,000 + ₦63,000 = ₦287,000 approximately.

Self-employed taxpayers must file their annual returns by March 31st each year and can pay taxes quarterly or in full. Non-compliance attracts fines and interest.

In essence, tax on self-employed income depends on actual profits after reliefs. Keeping proper records and using legitimate deductions ensures fair taxation while avoiding penalties.

What is the minimum tax in Nigeria?

The minimum tax in Nigeria is the least amount an individual or company must pay, even if they report little or no profit. It ensures that every income earner contributes something to government revenue.

For individuals, the Personal Income Tax Act (PITA) establishes that if after deductions a person’s income falls below the taxable threshold, they are still liable to pay a token amount.

For individuals, the minimum tax is 1% of gross income when the total reliefs and deductions reduce taxable income to zero or below. This rule applies primarily to self-employed persons and low-income earners not covered by the PAYE system.

However, those earning below the national minimum wage (₦30,000 per month or ₦360,000 annually) are fully exempt from income tax. This exemption protects low-income workers and ensures fairness.

The minimum tax ensures that everyone with an income, no matter how small, contributes to public services. It prevents tax avoidance and strengthens government revenue generation.

In summary, the minimum tax in Nigeria for individuals is 1% of gross income, except for those earning below the national minimum wage. This system upholds equity and promotes shared responsibility in funding national development.

How do you know your personal tax allowance?

Knowing your personal tax allowance in Nigeria requires understanding how much of your income is exempted before tax is applied. This is determined mainly by the Consolidated Relief Allowance (CRA), which is granted to every taxpayer under the Personal Income Tax Act (PITA).

The CRA ensures that a portion of your earnings is protected from taxation to promote fairness and reduce the financial burden on individuals.

To calculate your personal tax allowance, you must first determine your gross annual income, which includes your basic salary, allowances, bonuses, and other earnings. Then apply the CRA formula:
CRA = ₦200,000 or 1% of gross income (whichever is higher) + 20% of gross income.

For example, if you earn ₦3,000,000 annually, your allowance would be:
₦200,000 + (20% × ₦3,000,000) = ₦800,000.
This means ₦800,000 of your income is tax-free, and only the remaining ₦2,200,000 will be taxed using Nigeria’s progressive rates.

In addition to the CRA, other deductions that increase your total tax allowance include:

• Pension contributions (usually 8% of basic, housing, and transport).

• National Housing Fund (NHF) contributions.

• Life insurance premiums.

• National Health Insurance Scheme (NHIS) contributions.

To confirm your exact allowance, you can review your payslip (for PAYE workers) or request a breakdown from your State Internal Revenue Service (SIRS). For self-employed individuals, the computation is done during self-assessment or with the help of a tax consultant.

Understanding your personal tax allowance ensures that you don’t overpay taxes and that all legal deductions are applied correctly. It also helps you plan your finances better and stay compliant with tax laws.

How much is a personal exemption?

A personal exemption in Nigeria refers to the amount of income that is exempted from taxation due to statutory reliefs granted to individuals under the Personal Income Tax Act (PITA).

The main form of personal exemption is the Consolidated Relief Allowance (CRA), which serves as the baseline deduction available to all taxpayers.

The CRA is calculated as the higher of ₦200,000 or 1% of gross income, plus 20% of gross income. This relief replaced several older exemptions, such as housing and dependent allowances, to simplify the tax structure.

For example, if your annual income is ₦2,400,000:
CRA = ₦200,000 + (20% × ₦2,400,000) = ₦680,000.
Thus, ₦680,000 of your income is exempt from tax, and the remaining ₦1,720,000 becomes taxable.

Apart from the CRA, other exemptions apply to specific contributions such as:

• Pension contributions (8%) under the Pension Reform Act.

• Life assurance premiums, which are fully deductible.

• NHF and NHIS contributions, which qualify as reliefs.

• Gratuities and severance benefits, which are exempt from tax.

Essentially, the total of all these deductions forms your personal exemption, ensuring that a significant part of your income is shielded from taxation. This helps maintain equity in the tax system and reduces the burden on low and middle-income earners.

Therefore, your personal exemption is not a single figure but a combination of all applicable allowances and deductions. Understanding it helps you compute your tax liability accurately and ensures you pay only the correct amount required by law.

What expenses can I claim on my taxes?

In Nigeria, individuals — especially self-employed taxpayers and business owners — can claim several expenses as deductions when computing taxable income. The Personal Income Tax Act (PITA) allows these deductions to ensure that only real profits are taxed while legitimate costs of earning income are excluded.

Common expenses you can claim include:

1. Business and operational expenses: Rent for business premises, salaries, wages, utilities, stationery, and maintenance costs are deductible.

2. Travel and transport costs: Expenses incurred while conducting business or providing professional services are claimable, provided they are reasonable and verifiable.

3. Depreciation (capital allowances): For assets like machinery, vehicles, or equipment, the cost is written off gradually over their useful life.

4. Interest on business loans: Interest paid on funds borrowed for business operations is deductible.

5. Training and development expenses: Money spent on improving professional skills relevant to your job or business can be claimed.

6. Pension contributions: Statutory deductions toward pension schemes are fully tax-deductible.

7. Life assurance premiums: Premiums paid on approved life insurance policies qualify as allowable deductions.

8. Charitable donations: Donations made to government-approved organizations or charities can be deducted from your income.

To claim these expenses, taxpayers must keep proper records and receipts as proof. Expenses must be “wholly, exclusively, and necessarily incurred” in the production of income. Personal expenses like household rent, entertainment, or family vacations cannot be claimed.

For PAYE workers, allowable deductions are typically handled automatically by employers. However, self-employed individuals must submit detailed documentation during annual returns.

Claiming allowable expenses helps reduce taxable income, minimizes tax liability, and ensures fairness by taxing only actual profits rather than total earnings.

What is the minimum income to file taxes in 2025?

As of 2025, the minimum income threshold to file personal income tax in Nigeria remains guided by the Personal Income Tax Act (PITA) and subsequent amendments.

Individuals earning below the national minimum wage — which is currently ₦30,000 per month or ₦360,000 per year — are not required to pay income tax.

This exemption ensures that low-income earners are not burdened with taxation that could affect their basic livelihood. However, even if exempt, individuals may still be required to file annual tax returns to maintain compliance and access benefits such as Tax Clearance Certificates (TCC).

For individuals earning above the minimum wage, taxes are computed after applying the Consolidated Relief Allowance (CRA) and other deductions. The CRA ensures that only income exceeding a certain level becomes taxable.

For example, if you earn ₦400,000 annually:
CRA = ₦200,000 + (20% × ₦400,000) = ₦280,000
Taxable income = ₦400,000 − ₦280,000 = ₦120,000
Since ₦120,000 falls below the first tax band (₦300,000 at 7%), you still pay no tax.

Therefore, in practical terms, only individuals earning above ₦360,000 to ₦400,000 annually (depending on deductions) will begin to pay tax in 2025.

This threshold is designed to protect low-income earners while ensuring fairness for higher earners. Regular updates to tax laws may adjust these figures, but the principle of exempting the poorest citizens remains constant.

Is it okay if I don’t file my taxes?

No, it is not okay to ignore filing your taxes in Nigeria. Failing to file tax returns is a legal offense under the Personal Income Tax Act (PITA) and can lead to penalties, interest charges, and even prosecution.

Every individual, whether employed or self-employed, is required to file tax returns annually, even if they have no taxable income.

For employees, employers typically handle monthly PAYE deductions. However, employees must still file a Statement of Income and Claims for Allowances and Reliefs at the beginning of each year to confirm their annual tax status.

For self-employed individuals, the responsibility is personal. They must file annual returns between January 1st and March 31st, declaring their income, deductions, and reliefs.

If you fail to file:

1. Penalties apply: ₦5,000 for individuals (₦25,000 for companies), plus ₦100 for each additional day of default.

2. Interest accumulates: The longer the delay, the more interest accrues on unpaid taxes.

3. Legal consequences: Persistent non-compliance can result in court prosecution or business closure.

4. Restricted access: Without proof of tax filing, you cannot obtain a Tax Clearance Certificate (TCC), which is necessary for government contracts, loans, and travel documents.

In addition, non-filers risk being flagged for audits or investigations by the Federal Inland Revenue Service (FIRS) or State Internal Revenue Services (SIRS).

Even if you owe no tax, filing returns demonstrates transparency and compliance. Many states offer voluntary disclosure programs that allow defaulters to regularize their tax status without severe penalties.

In summary, not filing taxes is never advisable. Filing ensures compliance, builds financial credibility, and protects you from penalties and legal issues.

What is the penalty for filing the wrong tax return?

Filing a wrong tax return in Nigeria is a serious tax offense under the Personal Income Tax Act (PITA) and the Federal Inland Revenue Service (Establishment) Act (FIRSEA).

The law imposes penalties to discourage misinformation, whether it is deliberate or due to negligence. A wrong tax return occurs when an individual or business provides inaccurate information about their income, deductions, or reliefs to reduce their tax liability or evade payment.

The penalties depend on whether the act was intentional (fraudulent) or accidental (careless). If the error is deemed negligent or careless, the taxpayer is liable to a fine of ₦5,000 or more, plus interest on any underpaid tax.

If the act is found to be deliberate tax evasion, the consequences are more severe — the individual may face fines of up to 100% of the unpaid tax amount, imprisonment for up to three years, or both.

For example, if a taxpayer declares an annual income of ₦1,000,000 instead of ₦2,000,000, resulting in ₦100,000 less tax paid, they can be forced to pay back the ₦100,000 underpaid amount, a penalty equal to that amount (₦100,000), and additional interest.

Furthermore, the FIRS and State Internal Revenue Services (SIRS) have the authority to audit tax returns. If discrepancies are discovered, they can issue additional assessments and demand payment of arrears. Repeated offenses or fraudulent activities can also lead to the suspension of business operations and prosecution.

To avoid these penalties, taxpayers must ensure accuracy in all tax filings. It is advisable to keep proper financial records, engage qualified accountants, and file returns on time.

If an error is discovered after submission, the taxpayer should file an amended return immediately and notify the tax authority. Honesty and transparency can often lead to leniency, while concealment attracts heavier fines.

In summary, filing incorrect tax information undermines compliance and can damage your financial credibility. Whether accidental or intentional, such mistakes should be corrected promptly to avoid severe legal and financial consequences.

What is a red flag on a tax return?

A red flag on a tax return refers to any entry or pattern that draws the attention of tax authorities, prompting further review or an audit.

The Federal Inland Revenue Service (FIRS) and State Internal Revenue Services (SIRS) use data-matching tools and analytical systems to detect inconsistencies, errors, or suspicious claims. When these anomalies appear, your return may be flagged for investigation.

Common red flags include:

1. Unusually high deductions — Claiming excessive reliefs, allowances, or business expenses that don’t match your reported income may trigger scrutiny.

2. Inconsistent income reporting — If your declared income differs significantly from bank deposits or prior year filings, it signals possible underreporting.

3. Failure to declare all income sources — Omitting side businesses, freelance earnings, or rental income is a major red flag.

4. Large charitable donations — While donations are deductible, abnormally large or undocumented ones attract attention.

5. Frequent loss declarations — Reporting business losses consecutively for several years may prompt an audit to verify if losses are genuine.

6. Mismatch between employer reports and employee returns — For PAYE workers, if your employer’s tax remittance doesn’t align with your filings, an investigation may follow.

When flagged, tax authorities may issue a notice of audit or investigation. This doesn’t automatically mean wrongdoing — it simply indicates that clarification or proof is needed. Keeping receipts, contracts, and payroll documents is crucial to defending your claims.

To avoid red flags, always maintain transparency. Report all income, claim only legitimate deductions, and avoid manipulations. It’s also wise to file consistently every year and avoid sudden, unexplained changes in figures.

Essentially, a red flag is the system’s way of ensuring accuracy and compliance. Being truthful, maintaining proper documentation, and consulting professionals during tax preparation significantly reduce the chances of attracting unwanted attention from the authorities.

What happens if you get audited and they find a mistake?

When the tax authority audits your records and discovers a mistake, the consequences depend on the nature, intent, and size of the error. The Federal Inland Revenue Service (FIRS) and State Internal Revenue Services (SIRS) conduct audits to verify the accuracy of declared income, deductions, and payments.

If an audit reveals discrepancies, the taxpayer may face reassessments, penalties, interest, or legal action.

If the mistake is found to be genuine or unintentional, such as a miscalculation or omission without intent to deceive, the tax authority usually demands payment of the underpaid amount plus interest. In such cases, fines may be modest, and the taxpayer may simply be advised to correct their records and file amended returns.

However, if the audit determines that the error was deliberate or fraudulent, the taxpayer faces stricter consequences, including:

• A fine of up to 100% of the unpaid tax amount.

• Interest charges for each month the payment was delayed.

• Possible criminal prosecution, leading to imprisonment or business license suspension.

Auditors typically provide the taxpayer an opportunity to explain discrepancies. If you can provide valid documents — receipts, bank statements, or invoices — to justify your filings, penalties may be waived. On the other hand, failure to produce evidence implies concealment, which worsens the outcome.

To prevent such issues, taxpayers should maintain accurate financial records for at least six years, as the tax authority can audit within that timeframe. Engaging a professional accountant and filing taxes correctly each year greatly reduces the risk of serious penalties.

In conclusion, an audit isn’t automatically a punishment. It’s a verification process. But if errors are found and not properly explained, the repercussions can be costly. Transparency and preparedness are your best defenses against audit penalties.

Can my bank account be audited?

Yes, your bank account can be audited by the Federal Inland Revenue Service (FIRS) or State Internal Revenue Service (SIRS) if there is suspicion of tax evasion or inconsistency between declared income and actual financial transactions.

Under Nigerian tax law, the FIRS has the power to obtain information from banks, financial institutions, and other entities to verify taxpayers’ financial activities.

This process, known as third-party data verification, allows tax authorities to compare reported income with deposits, transfers, and other account movements. If your declared income seems too low compared to your bank records, you may be flagged for a tax audit or investigation.

For example, if you declare an annual income of ₦2,000,000 but bank deposits show ₦10,000,000, the tax authority may suspect undeclared income sources. They can request your bank statement through formal channels and cross-check it with your filed returns.

Bank account audits are common in cases involving self-employed individuals, freelancers, and business owners who receive payments directly. These audits are intended to ensure compliance, not to violate privacy. The Bankers’ Committee and FIRS have agreements allowing access only under lawful requests.

To protect yourself, maintain proper documentation for every inflow and outflow — including invoices, receipts, and contracts. Distinguish between personal and business accounts to avoid confusion during audits.

While routine bank monitoring doesn’t happen daily, the government can audit accounts when needed, especially during tax investigations, suspicious large transactions, or compliance reviews.

In short, your bank account can indeed be audited, but only under legitimate circumstances. Keeping transparent and organized financial records ensures you remain compliant and stress-free during such reviews.

What amount is tax-free?

The tax-free amount in Nigeria refers to the portion of your income that is exempt from taxation. This is mainly determined by the Consolidated Relief Allowance (CRA) and other allowable deductions under the Personal Income Tax Act (PITA). The CRA ensures that everyone enjoys a basic exemption before any tax is applied.

The CRA formula is:
₦200,000 or 1% of gross income (whichever is higher) + 20% of gross income.

For example, if your annual income is ₦2,000,000:
CRA = ₦200,000 + (20% × ₦2,000,000) = ₦600,000.
This means ₦600,000 of your income is tax-free, and only ₦1,400,000 is taxable.

Additionally, the following deductions are also tax-free:

• Pension contributions (8%)

• National Housing Fund (NHF) contributions

• National Health Insurance Scheme (NHIS) contributions

• Life assurance premiums

• Gratuities and severance payments

• Compensation for loss of employment (if genuine and not disguised as salary)

Moreover, individuals earning below the national minimum wage (₦30,000 per month or ₦360,000 annually) are completely exempt from paying personal income tax.

In practical terms, the tax-free amount varies depending on income level and applicable deductions. The higher your approved reliefs, the greater your exemption. Understanding this helps in tax planning and ensures you pay only what is required by law.

How do you lower your taxes?

Lowering your taxes in Nigeria legally requires careful financial planning, use of available reliefs, and compliance with the Personal Income Tax Act (PITA).

The Nigerian tax system allows individuals to minimize their taxable income through deductions, exemptions, and smart record-keeping. Understanding these legal strategies ensures that you pay only what you owe — not more.

1. Maximize your Consolidated Relief Allowance (CRA):
   Every taxpayer is entitled to a CRA of ₦200,000 or 1% of gross income (whichever is higher) plus 20% of gross income. Ensuring this relief is fully applied automatically reduces taxable income.

2. Contribute to a pension scheme:
   Statutory pension contributions (typically 8% of your basic, housing, and transport allowances) are fully tax-deductible. Increasing your voluntary pension contributions can further reduce your taxable income while building future savings.

3. Invest in life assurance policies:
   Premiums paid on approved life insurance plans are deductible from taxable income. This means the more you invest in life insurance, the less tax you owe.

4. Claim allowable deductions:
   Expenses such as National Housing Fund (NHF) contributions, National Health Insurance Scheme (NHIS) payments, and charitable donations to government-approved bodies are deductible.

5. For self-employed individuals:
   Deduct legitimate business expenses like rent, utilities, professional fees, and transportation from gross income. Ensure these expenses are wholly, exclusively, and necessarily incurred in earning income.

6. Leverage tax-efficient investments:
   Investing in government bonds, treasury bills, and other tax-exempt securities helps generate income without additional tax liability.

7. Maintain accurate records:
   Keeping proper documentation ensures that all allowable deductions can be proven during audits. Poor record-keeping often leads to losing valid reliefs.

8. Engage a tax consultant:
   Tax professionals can identify overlooked deductions and help structure your finances efficiently.

By combining these strategies, taxpayers can significantly lower their taxable income while remaining compliant. The key is to plan ahead, maintain documentation, and take advantage of every relief the law allows.

Which income is not taxable in Nigeria?

Not all forms of income are subject to taxation in Nigeria. The Personal Income Tax Act (PITA) outlines several types of income that are exempt from tax to promote fairness and reduce the financial burden on individuals. Understanding these exemptions helps taxpayers plan better and avoid paying taxes unnecessarily.

The major non-taxable incomes include:

1. Gratuities and retirement benefits:
   Payments received as gratuity, pension, or other retirement benefits are tax-free, provided they are not disguised as regular salary.

2. Compensation for loss of employment:
   If an employee is terminated and receives a compensation package that qualifies as genuine severance, it is exempt from income tax.

3. Life assurance and insurance benefits:
   Proceeds from life insurance policies or claims are not taxable.

4. National Housing Fund (NHF) refunds:
   Refunds from NHF contributions after retirement or resignation are tax-exempt.

5. Certain investment incomes:
   Income from Federal Government Bonds, Treasury Bills, and Corporate Bonds issued between 2012 and 2022 are tax-exempt under government incentive programs.

6. Scholarships, educational grants, and allowances:
   Money received for educational purposes, such as scholarships or research grants, is not subject to taxation.

7. Reimbursable business expenses:
   If your employer reimburses you for business-related expenses (e.g., travel or accommodation), these are not taxable, provided receipts are submitted.

8. Dividends from pioneer companies:
   Some new or “pioneer” industries enjoy temporary tax holidays, making their dividends exempt.

9. Gifts and inheritance:
   Gifts or inheritances are generally not taxed under PITA, though large transfers may be subject to scrutiny under anti-money laundering rules.

These exemptions ensure fairness and encourage savings, investment, and retirement planning. However, taxpayers must maintain documentation to prove the exempt nature of the income when questioned by the tax authorities.

How to calculate payslip?

A payslip is a detailed record of an employee’s earnings and deductions within a specific pay period. Calculating a payslip in Nigeria involves understanding key payroll components like gross salary, statutory deductions, and net pay.

Employers are required by law to provide accurate payslips under the Labour Act and Personal Income Tax Act (PITA).

Here’s how to calculate a typical payslip:

1. Determine Gross Pay:
   Gross pay includes the total of all earnings before deductions:

• Basic salary

• Housing allowance

• Transport allowance

• Other benefits (e.g., meal, utility, and leave allowances)

Example:
Basic: ₦100,000
Housing: ₦50,000
Transport: ₦30,000
Gross Salary = ₦180,000

2. Calculate Statutory Deductions:
   Mandatory deductions include:

• Pension (8%)

• National Housing Fund (2.5%)

• National Health Insurance Scheme (if applicable)

• PAYE (Pay As You Earn tax)

Example:
Pension = 8% of ₦180,000 = ₦14,400
NHF = 2.5% of ₦180,000 = ₦4,500
PAYE = Calculated based on income after applying CRA and tax bands.

3. Compute PAYE Tax:
   After applying the CRA and reliefs, calculate tax based on Nigeria’s graduated rates (7%–24%).

4. Net Pay:
   Net Pay = Gross Pay − (Pension + NHF + PAYE + Other Deductions).

5. Add Employer Contributions:
   Employers may add pension contributions (10%) or other benefits, though these don’t affect net pay.

A payslip typically displays:

• Employee details

• Gross earnings

• Deductions (Pension, NHF, PAYE)

• Net pay

Proper payslip calculation ensures compliance, accuracy, and transparency in payroll management.

What is gratuity?

Gratuity is a lump-sum payment made by an employer to an employee as a reward for long service or upon retirement, resignation, or termination.

In Nigeria, gratuity is recognized as a statutory end-of-service benefit under the Labour Act and various pension-related laws. It is usually calculated based on the employee’s years of service and final salary.

For example, an employer might offer one month’s basic salary for every completed year of service. If an employee has worked for 10 years with a monthly basic salary of ₦80,000, their gratuity would be ₦80,000 × 10 = ₦800,000.

Key features of gratuity:

• It is a one-time payment made at the end of employment.

• It is often separate from pension contributions.

• It acts as financial support after service or as recognition for loyalty.

Under Nigerian tax law, gratuity is tax-free, provided it is genuine and not disguised as salary. The Personal Income Tax Act (PITA) specifically exempts gratuity payments from taxation, making it a significant post-employment benefit.

Gratuity can be employer-funded (company policy) or part of a collective bargaining agreement. The Pension Reform Act 2014 emphasizes that private companies may replace gratuity with contributory pension schemes, but some organizations still maintain both.

Gratuity provides financial security, promotes employee retention, and fosters goodwill between employers and workers. It remains one of the most respected employment benefits in Nigeria.

What does CTC mean?

CTC stands for Cost to Company. It refers to the total amount an employer spends on an employee in a year, including salary, allowances, bonuses, benefits, and statutory contributions. Unlike basic salary, which is only part of the compensation, CTC represents the complete financial package offered by an employer.

Components of CTC typically include:

1. Basic Salary – The fixed component forming the foundation of earnings.

2. Allowances – Housing, transport, meal, utility, and medical allowances.

3. Bonuses and incentives – Performance-based payments.

4. Employer contributions – Pension (10%), health insurance, and NHF contributions.

5. Non-cash benefits – Company cars, accommodation, or official phones.

Example:
If an employee’s annual salary is ₦3,000,000, housing allowance ₦600,000, pension ₦300,000 (employer portion), and medical benefits ₦100,000, then:
CTC = ₦3,000,000 + ₦600,000 + ₦300,000 + ₦100,000 = ₦4,000,000.

CTC is not the same as take-home pay. Deductions like pension (employee’s portion), NHF, and PAYE are subtracted before net pay is received. The CTC gives employees a clear understanding of their total compensation value and helps employers maintain transparent pay structures.

What happens if you forgot to declare income?

Forgetting to declare income in Nigeria is treated as non-disclosure or underreporting of income, which is a tax offense under the Personal Income Tax Act (PITA) and the Federal Inland Revenue Service (Establishment) Act (FIRSEA).

The seriousness of the penalty depends on whether the omission was accidental or deliberate. In both cases, taxpayers are expected to rectify the error as soon as possible to avoid penalties, interest, or legal action.

When you fail to declare part or all of your income, it means you have filed an inaccurate tax return, resulting in underpaid taxes. The Federal Inland Revenue Service (FIRS) or the State Internal Revenue Service (SIRS) has the power to audit your financial records, compare them with your bank statements, and identify undeclared income.

If the omission is genuine — for instance, you forgot to include freelance earnings, rental income, or a side business — the law allows you to file an amended tax return to correct the mistake. However, you may still be required to pay the difference plus interest for the period of non-payment.

If the omission is found to be intentional (tax evasion), the penalties are severe. The FIRS can impose fines equal to 100% of the unpaid tax, charge additional interest, and even prosecute the offender. In some cases, offenders may face imprisonment or seizure of assets.

To prevent such issues, always maintain accurate records of all income sources, including employment, contracts, investments, and property rentals. Declaring all earnings — no matter how small — demonstrates transparency and ensures compliance.

In short, forgetting to declare income can lead to financial loss, legal issues, and reputational damage. The best approach is to stay honest, file accurate returns, and update the tax authorities promptly if an omission occurs.

What happens if you get audited and don’t have receipts?

If you are audited and cannot provide receipts or documents to support your tax claims, the Federal Inland Revenue Service (FIRS) or State Internal Revenue Service (SIRS) may treat the unverified expenses or deductions as invalid.

This means the claimed deductions will be disallowed, increasing your taxable income and resulting in a higher tax bill.

Tax audits rely on evidence to confirm the accuracy of declared income and expenses. Receipts, invoices, contracts, payroll records, and bank statements are key proofs. Without them, auditors may conclude that the figures in your tax return are unreliable.

If missing receipts lead to underreported tax, the taxpayer may face:

1. Payment of additional tax — covering the difference between declared and actual income.

2. Interest and penalties — which accumulate from the due date of payment.

3. Possible prosecution — if the missing records suggest fraudulent intent.

However, if the missing receipts are due to genuine reasons (e.g., loss due to fire or system failure), the taxpayer may submit alternative evidence such as bank statements, supplier confirmations, or written explanations. Auditors may show leniency if they are satisfied that the omission was not deliberate.

To avoid this problem, keep digital and physical copies of all receipts for at least six years, as required by tax law. Cloud storage or accounting software can make record-keeping easier.

In essence, the absence of receipts weakens your position during an audit and may result in paying more tax than necessary. Proper documentation is your strongest defense.

What happens if you get audited and they find a mistake?

When a tax audit reveals a mistake, the next steps depend on whether the mistake was an honest error or intentional misstatement. Tax authorities understand that genuine mistakes happen, so their response is usually measured and based on intent, size of the error, and cooperation of the taxpayer.

If the mistake is minor or unintentional (for example, arithmetic errors, forgotten income, or misapplied reliefs), the Federal Inland Revenue Service (FIRS) will issue a revised assessment notice showing the corrected tax due.

You will be required to pay the difference plus interest, but no severe penalty may apply if you cooperate promptly.

However, if the audit uncovers that the mistake was deliberate (for instance, falsifying figures, omitting income, or inflating deductions), the consequences become more serious. You could face:

• Penalties up to 100% of the unpaid tax

• Interest charges on the outstanding balance

• Possible criminal prosecution or public listing as a tax defaulter

In such cases, auditors can demand access to your financial records, bank statements, and other documents to quantify the unpaid tax accurately.

To manage the situation, taxpayers should remain transparent, cooperate with the audit team, and avoid providing false information. Hiring a professional tax consultant can help in reviewing audit findings and negotiating settlements.

Ultimately, a discovered mistake doesn’t always mean punishment — honesty and quick correction can minimize penalties. But intentional errors will always attract severe consequences.

Can my bank account be audited?

Yes, your bank account can be audited by the Federal Inland Revenue Service (FIRS) or State Internal Revenue Service (SIRS) if there is reason to suspect tax evasion or undeclared income.

Nigerian tax authorities have the legal right to access banking information through formal channels under the FIRS (Establishment) Act and the Personal Income Tax Act (PITA).

The audit process is usually triggered when there is a discrepancy between the income declared in your tax returns and the money flowing through your bank account.

For example, if you declare an annual income of ₦3,000,000 but your bank deposits total ₦10,000,000, the tax authorities may request a bank audit to investigate the difference.

During such audits, FIRS can issue a Third-Party Information Request to your bank, compelling them to provide account details. These records are then analyzed to determine whether undeclared or suspicious income exists.

However, audits are conducted under strict confidentiality and only when justified by evidence of irregularities. They are not random or intrusive — their purpose is to ensure tax compliance and detect fraud.

To stay compliant, ensure that all your income sources are reported accurately and supported by proper documentation. Maintain clear distinctions between business and personal accounts to avoid confusion.

Bank audits are a common part of modern tax enforcement, particularly with the introduction of digital banking and financial transparency regulations. Having clean records ensures that such audits are smooth and stress-free.

How much of my income is taxable?

The amount of your income that is taxable in Nigeria depends on your total annual income, the Consolidated Relief Allowance (CRA), and other applicable deductions.

The Personal Income Tax Act (PITA) outlines that taxes are charged only on the portion of your income remaining after subtracting reliefs, exemptions, and allowable deductions.

Here’s how to determine your taxable income step by step:

1. Calculate total annual income:
   Include all earnings — salary, allowances, bonuses, rent, interest, and freelance income.

2. Apply Consolidated Relief Allowance (CRA):
   CRA = ₦200,000 or 1% of gross income (whichever is higher) + 20% of gross income.

3. Subtract allowable deductions:
   These include:

• Pension contributions (8%)

• National Housing Fund (2.5%)

• Life assurance premiums

• NHIS contributions

• Donations to approved charities

The result is your chargeable income — the amount on which tax rates are applied.

4. Apply the progressive tax rates:
   Nigeria uses a graduated system:

• First ₦300,000 — 7%

• Next ₦300,000 — 11%

• Next ₦500,000 — 15%

• Next ₦500,000 — 19%

• Next ₦1,600,000 — 21%

• Above ₦3,200,000 — 24%

For example, if your annual income is ₦3,000,000, your CRA is ₦800,000, leaving ₦2,200,000 as taxable income. Based on the rates above, your total tax liability is calculated progressively across each bracket.

Therefore, your taxable income depends on both your earnings and your applicable reliefs. By maximizing deductions and understanding the structure, you can ensure accurate and fair taxation.

How to write a personal check?

Writing a personal check correctly is a simple but important financial skill that ensures your payment is accepted without issues. A personal check serves as a written order from you (the account holder) to your bank, instructing it to pay a specific amount to the person or entity named on the check.

To write one correctly, you must include all essential details clearly and legibly.

Here are the steps to follow when writing a personal check:

1. Date Line: Write the date at the top right corner. Use the full date (e.g., “October 18, 2025”) rather than short forms like “10/18/25” to avoid confusion.

2. Payee Line (“Pay to the order of”): Write the full legal name of the person, company, or organization you are paying. Avoid nicknames or abbreviations.

3. Amount in Numbers: In the small box on the right side, write the amount in numerical form, ensuring accuracy. Example: “₦25,000.00.”

4. Amount in Words: On the next line, write out the amount in words to prevent tampering. Example: “Twenty-five thousand naira only.” Always include the word “only” at the end.

5. Memo Line (Optional): Write a brief note about the purpose of the check (e.g., “Rent payment” or “Tuition fees”).

6. Signature: Sign the check using the same signature your bank has on record. Unsigned checks are invalid and will not be processed.

Additional Tips:

• Always use blue or black ink for visibility.

• Avoid leaving blank spaces where figures can be altered.

• Never postdate checks (dating them ahead of time) unless both parties agree.

• Record the transaction in your check register to keep track of your spending and prevent overdrafts.

When properly filled, a personal check provides a secure and traceable form of payment. However, ensure you have sufficient funds in your account before issuing it; bouncing a check can result in penalties and harm your financial reputation.

What happens if I don’t file my taxes?

Failing to file your taxes in Nigeria has serious consequences under the Personal Income Tax Act (PITA) and Federal Inland Revenue Service (Establishment) Act (FIRSEA).

Tax filing is a civic obligation, and the government uses the funds to support infrastructure, healthcare, education, and national development. When you fail to file, you risk penalties, interest, and potential prosecution.

If you don’t file your taxes by the deadline, the Federal Inland Revenue Service (FIRS) or State Internal Revenue Service (SIRS) may issue a notice of non-compliance.

The first consequence is a penalty for late filing, which can range from ₦25,000 for individuals to ₦500,000 for companies, depending on the circumstances.

Additionally, you’ll be charged interest on unpaid taxes, which accumulates until full payment is made. Continued refusal to file or pay can result in enforcement actions, including:

• Garnishment of bank accounts

• Seizure of assets or business equipment

• Court summons or imprisonment

In some cases, the tax authorities may make an estimated assessment based on your income history or lifestyle and demand payment accordingly. This assessment might be higher than your actual liability, and you will still be required to prove your income records to correct it.

Beyond the financial implications, not filing your taxes damages your credibility. It can affect your ability to secure loans, government contracts, or travel clearance since tax clearance certificates (TCCs) are often required for official processes.

To avoid penalties, always file your returns before March 31st each year and pay promptly. If you can’t meet the deadline, contact your tax office to request an extension or payment plan. It’s always better to file late than not at all.

How to avoid an audit on your tax return?

Avoiding a tax audit doesn’t mean hiding income — it means filing an accurate and transparent return that doesn’t raise red flags. Tax audits are typically triggered when the Federal Inland Revenue Service (FIRS) detects inconsistencies, suspicious deductions, or undeclared income.

To minimize your chances of being audited, follow these best practices:

1. Report all income sources: Include salaries, business profits, rent, investments, and freelance work. Omitted income is one of the biggest audit triggers.

2. Ensure accuracy: Double-check all numbers, especially when calculating deductions and reliefs. Arithmetic errors often draw attention.

3. Avoid unrealistic deductions: Claim only legitimate and provable expenses. Overstated business or charity deductions invite scrutiny.

4. Keep proper records: Maintain receipts, invoices, and bank statements for at least six years.

5. File on time: Late filings often get extra attention. Submit your returns before the deadline.

6. Be consistent: Major differences between this year’s and last year’s income or expenses may raise questions unless justified.

7. Hire a professional: A certified tax consultant ensures compliance with all tax laws and prevents avoidable mistakes.

Although audits cannot be completely avoided, accurate and honest reporting greatly reduces your chances. Compliance is your best defense.

How do you know if your taxes are rejected?

When you file your taxes electronically or manually, you’ll receive confirmation from the Federal Inland Revenue Service (FIRS) or State Internal Revenue Service (SIRS) once your return is received and processed.

If your tax return is rejected, you’ll be notified either through an email, text message, or a notice from the tax authority.

Common reasons for rejection include:

• Incorrect Tax Identification Number (TIN)

• Missing personal details (e.g., name, address, or employer information)

• Mismatched income records between employer and employee reports

• Arithmetic or filing errors in declared income

• Unsupported or overstated deductions

If your return is rejected, review the notice carefully to understand the reason. Once corrected, resubmit promptly. Tax authorities typically allow you to refile without penalty if you act quickly and communicate with your tax officer.

Rejections are not the same as audits — they simply mean your submission could not be processed due to inconsistencies or missing information. To prevent this, always review your tax forms before filing and verify that all documents are attached.

If you use an online tax portal, monitor your submission status regularly. A successful return usually shows as “Filed” or “Approved,” while a rejected one will show “Pending Correction” or “Returned for Review.”

What if I forgot to report a small amount of income?

Even if the amount seems small, forgetting to report any income is considered underreporting and can lead to penalties if discovered. The FIRS or SIRS can detect discrepancies through bank audits, employer reports, or third-party data.

If you realize the omission early, the best action is to file an amended return voluntarily. Tax authorities are usually lenient when taxpayers correct mistakes themselves. You’ll only need to pay the additional tax plus any applicable interest, not the heavier penalties that apply for deliberate concealment.

However, if the income is discovered during an audit, the situation changes. You may be charged with tax evasion or non-disclosure, which could result in fines of up to 100% of the unpaid amount and possible prosecution.

It’s important to note that the tax law doesn’t define a “small amount.” Whether the income is ₦5,000 or ₦500,000, it must be declared if it contributes to your total annual income.

Honesty is the best policy when it comes to taxes. Declare every source of income, no matter how minor. Doing so builds your credibility with tax authorities and protects you from unexpected audits or penalties.

Will I get my refund if I’m being audited?

When you’re being audited, your tax refund may be temporarily delayed until the audit process is completed. This is because the Federal Inland Revenue Service (FIRS) or State Internal Revenue Service (SIRS) must first confirm that the information in your tax return is accurate and that you’re indeed entitled to the refund amount you claimed.

Essentially, the audit ensures that no errors, underreporting, or overstatements were made before funds are released.

During an audit, the tax authority reviews your financial records, including income statements, expense receipts, deductions, and relief claims. If everything checks out and no discrepancies are found, your refund will be approved and paid to your registered account.

However, if the audit reveals that you owe additional taxes, penalties, or interest, the refund will be reduced or withheld entirely to offset the balance due.

It’s important to understand that being audited doesn’t automatically mean wrongdoing. Sometimes, audits are triggered randomly or because your return showed figures that differ significantly from previous years.

For example, if you claimed an unusually high refund or deducted large expenses, the system may flag it for verification.

If your audit is ongoing, stay cooperative and organized. Submit requested documents promptly and clearly explain any legitimate differences in income or deductions. Hiring a tax consultant can also help ensure that your response is professional and compliant.

Once the audit is finalized and no outstanding issues remain, your refund will be processed normally. The key is transparency and patience — tax authorities need assurance that your refund claim is valid.

In summary, yes, you can still get your tax refund while being audited, but it will not be issued until the audit confirms that your tax return is accurate and that you don’t owe additional amounts.

How to fail an audit?

Failing a tax audit occurs when a taxpayer cannot prove the accuracy of their tax return or is found guilty of underreporting income, inflating expenses, or providing false information.

A failed audit usually leads to additional tax assessments, penalties, interest charges, and sometimes criminal prosecution if fraud is proven.

You “fail” an audit when the Federal Inland Revenue Service (FIRS) or State Internal Revenue Service (SIRS) determines that your declared income and expenses don’t match your actual financial records.

For example, if you claimed ₦2,000,000 in business expenses but can only provide receipts for ₦800,000, the remaining ₦1,200,000 will be disallowed, increasing your taxable income.

Common reasons people fail tax audits include:

1. Missing receipts or poor record keeping.

2. Inflating deductions or expenses to reduce taxable income.

3. Failing to declare all income sources such as side jobs or rental income.

4. Providing inconsistent or false documentation.

5. Ignoring audit requests or not cooperating with tax officers.

The consequences of failing an audit can be severe. In addition to paying the recalculated tax, you may face interest and penalties of up to 100% of the unpaid amount. In extreme cases, FIRS may freeze your bank account, seize property, or initiate legal proceedings.

To avoid failure, maintain organized financial records for at least six years, document every deduction, and file accurate returns annually. If you receive an audit notice, respond promptly and respectfully.

In essence, failing an audit isn’t just about losing money — it damages your credibility with tax authorities and may affect your ability to obtain tax clearance certificates or government contracts in the future.

How much money can I deposit without being flagged?

In Nigeria, the Central Bank of Nigeria (CBN) and the Federal Inland Revenue Service (FIRS) monitor large deposits to prevent money laundering, fraud, and tax evasion.

While there’s no fixed “flagging” limit, deposits of ₦5,000,000 or more for individuals and ₦10,000,000 or more for companies are automatically reported to regulatory authorities under the Money Laundering (Prohibition) Act 2022.

This doesn’t mean you can’t deposit such amounts; it simply means the transaction will be recorded and may be reviewed if deemed suspicious. The bank may ask you to provide documentation explaining the source of funds, such as invoices, contracts, or sales receipts.

Even smaller deposits made frequently can attract attention if the pattern suggests an attempt to avoid reporting thresholds. This is called structuring, and it’s also illegal. For instance, splitting ₦10,000,000 into five separate ₦2,000,000 deposits to bypass reporting rules may trigger an investigation.

The FIRS uses bank transaction data to cross-check tax filings. If your deposits far exceed your declared income, you may be called in for an audit to explain the discrepancy.

To avoid problems, always ensure that your deposits correspond with your legitimate income sources. If your bank requests documentation, cooperate fully. It’s not a penalty — it’s a compliance procedure to verify that funds come from lawful means.

Therefore, while you can deposit any amount, once your transactions exceed ₦5 million (individuals) or ₦10 million (companies), expect them to be automatically reported and potentially reviewed. Transparency and record keeping are key to staying safe.

Who is most likely to get audited?

Audits are typically not random — certain taxpayers are statistically more likely to be audited because their financial profiles or filing patterns raise red flags.

In Nigeria, the Federal Inland Revenue Service (FIRS) and State Internal Revenue Service (SIRS) use both risk-based selection and random sampling to identify individuals and businesses for review.

The groups most likely to get audited include:

1. Self-employed individuals — because they control their income reporting and deductions, making underreporting easier.

2. High-income earners — those earning above ₦10 million annually are more closely monitored.

3. Businesses with inconsistent filings — sudden income drops or huge losses may raise suspicion.

4. People with large deductions or refunds — unusually high claims often trigger reviews.

5. Individuals with multiple income streams — freelancers, landlords, and contractors are frequently audited.

6. Cash-intensive businesses — restaurants, retail stores, or transport operators attract closer scrutiny due to limited paper trails.

7. Non-filers or late filers — failing to file or repeatedly submitting late returns signals potential non-compliance.

That said, being audited doesn’t mean guilt. It’s simply a verification process to ensure tax accuracy. Keeping organized records and being transparent with tax authorities can make audits smooth and uneventful.

In short, the more complex or inconsistent your financial activities appear, the more likely you are to be audited. Honest reporting and proper documentation remain the best ways to stay audit-proof.

Whose accounts are not required to be audited?

Not every account is legally required to undergo an external audit. In Nigeria, the Companies and Allied Matters Act (CAMA) 2020 and FIRS guidelines outline specific exemptions, particularly for small companies and certain non-profit entities.

Accounts that are not required to be audited include:

1. Small companies — defined as businesses with an annual turnover below ₦120 million and net assets not exceeding ₦60 million. These entities can prepare unaudited financial statements, although they must still file tax returns.

2. Micro businesses and sole proprietorships — individual traders, artisans, and freelancers operating under personal names usually don’t need audited accounts unless required for a loan or contract.

3. Certain non-profit organizations — associations or charities with limited financial activity may be exempt, provided they comply with donor reporting standards.

4. Dormant companies — entities that have not carried out any trading or income-generating activity during the year are exempt from audit, though they must still notify regulatory bodies.

However, while audits may not be mandatory, maintaining transparent and verifiable financial records remains essential. Tax authorities can still request documents to verify income and expenses at any time.

In summary, small-scale and low-turnover entities are generally exempt from audits under Nigerian law, but good record keeping and voluntary reviews can enhance credibility and business growth opportunities.

What kind of income is not taxable?

In Nigeria, not all forms of income are taxable under the Personal Income Tax Act (PITA). The law clearly specifies certain earnings and allowances that are exempt from taxation to promote fairness, encourage investment, and reduce the financial burden on taxpayers.

Understanding which incomes are non-taxable helps individuals and businesses plan better and comply efficiently.

1. Allowable Reliefs and Exemptions:
   Certain statutory contributions are not taxed because they serve long-term welfare or development purposes. These include:

• Pension contributions: Employee contributions to an approved pension fund (usually 8% of salary) are fully exempt.

• National Housing Fund (NHF): 2.5% contribution by employees is tax-exempt.

• Life assurance premiums: Payments made on personal or family life insurance policies are excluded from taxable income.

• National Health Insurance Scheme (NHIS): Contributions made to NHIS for medical coverage are not taxable.

2. Certain Allowances:
   Although most allowances are taxable, a few enjoy exemption under specific conditions, such as hardship allowances or meal subsidies provided within company premises.

3. Reimbursements:
   Payments reimbursing employees for work-related expenses (like travel, accommodation during official duty, or fuel costs) are not taxable, provided there is documentation proving the expenses were business-related.

4. Capital Receipts:
   Proceeds from selling assets like land, vehicles, or shares are not subject to personal income tax. However, they may be liable for Capital Gains Tax (CGT) at 10%.

5. Dividends and Interest from Government Securities:
   Income from government bonds, treasury bills, and other approved securities is tax-free. This exemption was introduced to encourage investment in national development instruments.

6. Gratuities and Severance Payments:
   Gratuity payments received on retirement or death are exempt, provided they are not excessive and are paid according to company policy or collective agreements.

In summary, while wages and business profits are taxable, several forms of income are not, especially those aimed at long-term savings, welfare, or government-approved investments. Being aware of these exemptions allows taxpayers to structure their finances legally and minimize unnecessary tax liabilities.

How do I claim personal tax allowance?

A personal tax allowance, also known as the Consolidated Relief Allowance (CRA) in Nigeria, is a deduction granted to individuals to reduce the amount of their income subject to tax. The aim is to recognize basic living expenses and ensure that low-income earners are not overtaxed.

To claim your personal tax allowance, you must first be a registered taxpayer with a Tax Identification Number (TIN). The process begins with your employer or directly through the Federal Inland Revenue Service (FIRS) for self-employed individuals.

1. Understand the Structure of CRA:
   The CRA is calculated as:
   ₦200,000 or 1% of gross income (whichever is higher) plus 20% of gross income. This means that your total taxable income is reduced by this relief amount before applying the tax rates.

For example, if your annual gross income is ₦3,000,000, your CRA is ₦200,000 + 20% of ₦3,000,000 = ₦200,000 + ₦600,000 = ₦800,000. Therefore, you will only be taxed on ₦2,200,000.

2. Other Allowable Deductions:
   In addition to CRA, you can claim deductions for:

• Pension contributions

• NHF contributions

• Life assurance premiums

• Donations to approved charities

3. Filing the Claim:
   If you are an employee, your employer automatically includes CRA in the PAYE (Pay As You Earn) system when computing your monthly tax. However, if you are self-employed or a freelancer, you must claim it manually by filing an annual self-assessment tax return before March 31 each year.

4. Supporting Documents:
   Keep records like pay slips, pension statements, and receipts for insurance premiums. These may be required if your claim is audited.

In essence, claiming your personal tax allowance ensures that only your disposable income after basic deductions is taxed. It is your right as a taxpayer and plays a major role in reducing your tax burden legally.

What is gratuity?

Gratuity is a lump-sum payment made by an employer to an employee as a reward for long-term service, retirement, or termination of employment.

In Nigeria, gratuity is recognized under the Labour Act and various company policies as part of an employee’s end-of-service benefits. It acts as a token of appreciation for loyalty and contribution to the organization.

Gratuity is generally calculated based on the employee’s length of service and final salary. For instance, a company may decide to pay one month’s salary for every completed year of service. So, if an employee earns ₦200,000 monthly and has worked for 10 years, the gratuity would be ₦2,000,000.

In terms of taxation, gratuity payments are exempt from personal income tax provided they are paid in line with company policy or collective agreements. However, excessive or discretionary payments beyond normal entitlements may attract tax.

Gratuity is distinct from pension. While pensions are funded by both employer and employee contributions throughout the employee’s career, gratuity is a one-time payment made solely by the employer at the end of service.

Many private organizations now operate pension-based schemes instead of gratuity due to the introduction of the Pension Reform Act 2014, which made pension contributions compulsory for employers and employees.

However, some sectors, especially public institutions and legacy companies, still pay gratuity alongside pensions.

In short, gratuity provides financial stability to retirees and recognizes their long years of dedication. It remains one of the most valued components of employee compensation in Nigeria.

What does CTC mean?

CTC stands for Cost to Company. It represents the total amount an employer spends on an employee annually, including all monetary and non-monetary benefits. In essence, it’s the full value of your employment package — not just your take-home pay.

CTC includes:

1. Basic salary — the fixed monthly or annual payment.

2. Allowances — such as housing, transport, meal, and utility allowances.

3. Employer contributions — pension, NHF, NHIS, and other statutory benefits.

4. Bonuses and incentives — performance-based rewards or end-of-year payments.

5. Non-cash benefits — such as official cars, accommodation, or medical coverage.

For example, if an employee earns ₦2,000,000 annually in salary, ₦500,000 in allowances, and ₦200,000 in employer contributions, the total CTC is ₦2,700,000.

Understanding your CTC is important because it affects how your taxes are calculated. Personal income tax in Nigeria is based on gross income, which is derived from your total earnings before deductions. However, not every component of CTC is taxed equally — statutory contributions and certain allowances may be exempt.

In summary, your CTC is the employer’s full cost of keeping you employed, while your net salary is what you actually take home after taxes and deductions.

What happens if you forgot to declare income?

Forgetting to declare income — whether intentional or accidental — is treated as a violation of tax law under the Personal Income Tax Act (PITA).

When this happens, you risk facing penalties, interest charges, or audits from the Federal Inland Revenue Service (FIRS) or the State Internal Revenue Service (SIRS).

If the omission is discovered by you first, it’s best to correct it immediately by filing an amended tax return. Tax authorities appreciate voluntary disclosure and are more lenient toward taxpayers who take responsibility early. You’ll likely only be required to pay the additional tax owed plus minor interest.

However, if the omission is discovered during an audit or investigation, it becomes a serious matter. You may be penalized up to 100% of the unpaid tax or face legal action for deliberate tax evasion.

The government uses multiple data sources to detect undeclared income — including bank transactions, employer reports, and third-party information. Even small amounts of unreported income can raise suspicion if patterns emerge.

To prevent such issues, always keep clear records of all income streams, whether from salary, rent, business, or investments. Transparency ensures compliance and protects you from unnecessary legal troubles.

In short, failing to declare income can have financial and legal consequences. Honesty and proactive correction remain the best strategies for responsible taxpayers.