PAYE (Pay As You Earn) — Calculation Methodology
Estimates annual PAYE income tax liability by applying progressive tax bands to taxable income after deducting statutory and voluntary reliefs.
Estimates annual PAYE income tax liability by applying progressive tax bands to taxable income after deducting statutory and voluntary reliefs.
Determine Gross Annual Income
Section 30Total annual employment income is established, including basic salary, housing allowance, transport allowance, and any other taxable emoluments.
Calculate Statutory Reliefs
Section 33Mandatory and voluntary relief deductions are computed. Under NTA 2025, the Consolidated Relief Allowance (CRA) is abolished. Instead, individual reliefs are applied: pension contribution (8%), NHF (2.5% of basic), NHIS (5% of basic), rent relief (20% of rent, capped at ₦500,000), life insurance premiums, and voluntary pension contributions.
| Relief | Rate / Basis | Cap | Reference |
|---|---|---|---|
| Pension Contribution | 8% | Of pensionable emoluments | Section 33(1) |
| NHF | 2.5% | Of basic salary | Section 33(2) |
| NHIS | 5% | Of basic salary | Section 33(2) |
| Rent Relief | 20% | Of annual rent paid | ₦500,000 cap — Section 33(3) |
| Life Insurance | Actual | Premium paid | Section 33(4) |
| Voluntary Pension | Actual | Additional contributions | PRA 2014, Section 4(3) |
Compute Taxable Income
Section 34Taxable income is determined by subtracting the total reliefs from gross annual income. If reliefs exceed income, taxable income is zero and no PAYE liability arises.
Apply Progressive Tax Bands
Section 34(1)Taxable income is allocated across six progressive bands. The first ₦800,000 is tax-free. Subsequent bands are taxed at rates from 15% up to 25% for income exceeding ₦50,000,000.
| Band | Rate | Income Range | Reference |
|---|---|---|---|
| Band 1 | 0% | First ₦800,000 | Section 34(1)(a) |
| Band 2 | 15% | Next ₦2,200,000 | Section 34(1)(b) |
| Band 3 | 18% | Next ₦7,000,000 | Section 34(1)(c) |
| Band 4 | 21% | Next ₦15,000,000 | Section 34(1)(d) |
| Band 5 | 23% | Next ₦25,000,000 | Section 34(1)(e) |
| Band 6 | 25% | Above ₦50,000,000 | Section 34(1)(f) |
Determine Total Annual Tax Liability
Section 34The tax from each band is summed to produce the total annual PAYE liability. Monthly and effective rate figures are derived for reference.
This methodology is provided for informational and educational purposes only. Tax calculations are estimates based on the information provided and the rates published in the Nigeria Tax Act 2025. Individual circumstances may vary. Consult a qualified tax adviser for personalised guidance.