In our previous article on Calculating Pay-As-You-Earn (PAYE), we discussed what PAYE is, how you can arrive at your taxable pay and tax payable. However, Employees have tax reliefs and exemptions; and this article will discuss those Reliefs in its simple terms.
Tax reliefs and exemptions according to Personal Income Tax (Amendments) Act, 2011 explained that Tax exempt are deducted from Gross Income before the income is subjected to tax. The following are parts of these exemptions:
1. National Housing Fund (NHF)
2. National Health Insurance Scheme Contribution
3. National Assurance Premium
4. National Pension Scheme.
5. Gratuities.
NATIONAL HOUSING FUND (NHF)
The National Housing Fund manage by the Federal Mortgage Bank of Nigeria (FMBN) under the National Housing Fund Act 1992, stated that any Nigerian earning an income of Three Thousand Naira (#3,000) and above per annum; both the public and private sector of the economy is required to contribute 2.5% of his monthly Basic Salary to the fund. The employer of such employee is to deduct the contribution from the employee’s monthly salary and remit to the Federal Mortgage Bank of Nigeria within one month of making the deduction. Also, all self-employed persons are to make the deductions from their monthly income and remit same to the Bank within one month. The funds to NHF Contributions according to the Act are exempted from payment of Income Tax.
NATIONAL HEALTH INSURANCE SCHEME
The NHIS Act 1999 establishes the Scheme for the purpose of providing health insurance which shall insure its beneficiaries of quality health services. The Scheme has caused the employer to deduct the negotiated amount from employees’ wages and such payments are to be made to the account of a designated health maintenance Schemes. Please note that the contributions made into the Scheme either by Employer or Employees shall form part of tax-deductible expenses in the computation of tax payable under the relevant tax laws.
CONTRIBUTION TO NATIONAL PENSION SCHEME
The contributions to the Pension Scheme are tax deductible expenses with the computation of tax payable by an employer or employee. But in the case where an employee voluntarily withdraws before the end of five (5) years from the date the contribution was made, it shall be subjected to tax.
According to Pension Reform Act (PRA) 2014, the Acts quoted that all employers in the public and private sector that have fifteen (15) or more employees are required to participate in a contributory Pension Scheme in favor of their employees.
The reform explains that the employee contributes 8% of its monthly total emoluments while the employer contributes 10%. Though, they may make an additional Voluntary contribution. The employer is under compulsion to make monthly deductions and remittances to the Pension Fund Custodian used by the employees not later than seven (7) working days after salaries have been paid. Section 7, 16 of the PFA 2014 emphasizes on withdrawals from the scheme while Section Ninety-Nine (99) discussed on offenses and penalties.
Other tax reliefs and the exemptions of employees will be articulated in the future.
Caveat
This article was prepared with proper care and professionalism to discuss tax reliefs and exemptions of employees and we do not accept responsibilities for errors and inaccuracies in the compilation of the data.
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