Personal Income Tax (PIT) Analysis: Assessable Income

Personal Income Tax (PIT) Analysis: Assessable Income

Personal Income Tax (PIT) Analysis: Assessable Income – Is Assessable income  equal  to adjusted profit  or adjusted income or Taxable income? The Nigeria personal income tax act 2014 has the answer to these. This is because the definition is important in the administration and computation of personal income tax in Nigeria, more so where wage employee’s PAYE and Sole proprietor’s Personal Income tax computations are concerned.

This post gives definitions for these tax principles and how they are applied in the real life activities. Therefore, this post is very good for students of Accounting and Taxation as well as businessmen and women and other tax thinkers. This post is full of knowledge that will help you solve your tax assignments and challenges. You will be able to contact us in the end for your tax asignments. If you do that, your Tax clearance certificate will be ready in 2 week’s time.

Personal Income Tax (PIT) Analysis: Assessable Income

Personal Income  Equation for Tax purposes:

This is a brain storming equation for which you will learn so much from. 

  1. For the Employee: Assessable income  may equal Adjusted income 
  2. For Sole Proprietor: Assessable income may  equal adjusted profit + adjusted income.  For this Sole proprietor Adjusted income/Profit  – Capital Allowance  = Taxable Income/Profit. This may be the same for the Employee who runs a business outfit or owns property and gets investment incomes.
So there are 3 sets of people here:
  1. The Wage Employee with unearnd income,
  2. The Sole Proprietor, and 
  3. The Wage Employee who has unearned incomes.

Assessable Income/Profit:

Assessable income became very prominent after the introduction of Education tax by Education Tax Act, 1993, now Cap. E4 LFN 2004 as amended. 

The relevant section provides that  ” … there shall be charged and payable an annual education tax which shall be assessed, collected and administered in accordance with the provisions of this Act”.

Further provision is that ” Education tax which is at a rate of 2% shall be charged on the assessable profits of a company registered in Nigeria..”.

The point here is that assessable profit/income as used by the registered companies  may not be the same as those used for the Sole Proprietor or an individual who don’t pay Education tax.

For the Wage Worker his income equation should be :

Gross income + other unearned income – Consolidate Relief Allowance = Taxable Income/Assessable income.

Personal Income Tax (PIT) Analysis: Assessable Income

For those in business, the income equation should be:

Gross Profit – Business Expenses  + Other income  – Consolidated Relief Allowance = Taxable income/Assessable profit.

But where capital allowance is involved  it becomes:

Gross Profit  – Business Expenses  + Other Income – Capital Allowance –  Consolidated Relief Allowance = Taxable income/Assessable profit.
The fact that these set of tax payers are not companies that are subject to paying Education Tax, the distinction between assessable income/profit and taxable income/profit may not matter at all.
Personal Income Tax (PIT) Analysis: Assessable Income

Personal Income Tax (PIT) Analysis: Assessable Income

The Gross Profit:

The individual tax payer should be able to adjust his/her  income/profit with the following:

  • Wages and salaries; 
  • Bonuses; 
  • Allowances; 
  • Compensations; 
  • Benefits; 
  • Pensions; 
  • Premiums;
  •  Business income; 
  • Percentage ownership; 
  • Rent; 
  • Fees;
  • Commission; 
  • Interests and dividends. 
  • Contribution to the National Pension Fund;
  •  Contribution to the National Health Insurance Scheme; 
  • Contribution to the National Housing fund; Gratuities;
  •  Life Assurance payments; 
  • Dividends and interests from quoted companies;
  •  Rent and business expenses; 
  • Bad debt recovered, and ;
  • Consolidated relief allowance.

Make References:

We have other articles on Personal Income Tax Act provisions which could help you understand this topic better. Just click any one of your choice and you will be better off.
Belief you me, by the time you are through with these topics, you would have covered about 5% of Chartered Institute of Taxation of Nigeria Intermediate certificate examination.

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Personal Income Tax (PIT) Analysis: Assessable Income

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