For many Nigerian workers, a portion of their monthly salary goes to Pay As You Earn (PAYE) tax. While paying tax is mandatory, employees can reduce the amount deducted from their earnings by taking advantage of approved tax reliefs and statutory deductions provided under the law.

Understanding how PAYE is calculated and ensuring eligible deductions are properly reflected in payroll can help lower taxable income and reduce monthly tax deductions.

In this article, Tribune Online examines how salary earners can take advantage of statutory tax deductions to lower their taxable income legally.

Understand your taxable income

PAYE is not calculated on an employee’s total gross salary alone. Instead, it is based on taxable income after eligible deductions and reliefs have been applied in line with Nigeria’s Personal Income Tax Act.

According to tax advisory firm PwC Nigeria, employees who claim available statutory reliefs and allowable deductions may reduce their overall tax liability.

How to calculate your PAYE tax

Calculating PAYE involves a few key steps:

  • Determine your annual gross income.
  • Subtract all allowable deductions and tax reliefs.
  • Calculate your taxable income.
  • Apply the applicable tax rates to arrive at the PAYE payable.

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Key deductions that can reduce your PAYE

Pension contributions

One of the most common deductions is the mandatory pension contribution. The statutory pension contribution is deducted before PAYE is calculated, reducing the income subject to tax while helping employees build retirement savings.

National Housing Fund (NHF)

Contributions to the National Housing Fund (NHF) may also reduce taxable income where applicable. In addition to the tax benefit, contributors may qualify for affordable mortgage facilities under the scheme.

Life insurance premiums

Premiums paid on eligible life insurance policies may qualify for tax relief, provided employees submit the required documentation to their employers or payroll administrators.

Consolidated Relief Allowance (CRA)

The Consolidated Relief Allowance (CRA) is a statutory relief available under Nigeria’s tax laws. It is applied during PAYE computation and helps reduce an employee’s chargeable income before tax rates are applied.

How to claim your tax reliefs

To ensure you benefit from available tax deductions and reliefs:

Review your monthly payslip to confirm that statutory deductions, including pension and other eligible contributions, are correctly reflected before PAYE is calculated.

Submit the necessary documents for qualifying tax reliefs, such as life insurance premiums, to your employer or payroll department.

Check your Tax Clearance Certificate to ensure all eligible deductions and reliefs have been captured correctly.