Personal Income Tax (PIT) Formula: PAYE Computation

Personal Income Tax (PIT) Formula: PAYE Computation

Personal Income Tax (PIT) Formula: PAYE Computation –  Associated with this are PAYE calculation formula, monthly PAYE tax calculator, Personal Income Tax Act in Nigeria all  giving rise to how to calculate personal income tax in Nigeria. Our concern here is how to help you with standard formula with its procedures on how to compute your  PAYE (Personal Income Tax) so that possibly you get to know how to do it by yourself.

Consequently, this post focuses on educating the employee on how he/she could calculate the  PAYE. As always such simplified formula would also be of great help to students of Accounting andTaxation for quick revisions especially for professional examinations. We have previously written two related articles on PITA. This is just a follow-up. Personal Income Tax (PIT) Equation: PIT Computation for Sole Proprietor and Computation of Sole Proprietor’s Tax Liability in Nigeria, which give details on some of the elements of this formula is relevant here. You may wish to look it up. At any rate, If you need further explanations, please don’t hesitate to send mail through cfmclimited@gmail.com. We will be glad to help. We can also handle your tax assignments if you allow us to do so.

Personal Income Tax (PIT) Formula: PAYE Computation

The Formula:

This formula involves the application of the following:

1. The Consolidated Tax Relief:

This is the first  claim to make.
N200,000 + 20% of the gross income (or 200,000 +  1% of the gross income; whichever is higher)

2. The Tax Rate to Use:

Apply these tax rates in Naira
First 3000,000 @ 7%
Next 300,000   @ 11%
Next 500,000    @ 15%
Next 500,000    @ 19%
Next 1,600,000  @ 21%
Above 3,200,000 @ 24%

Personal Income Tax (PIT) Formula: PAYE Computation

3. Non-taxable allowances to be deducted: 

The only allowed income deductions as on the 6th  Schedule of PITA.
  • National Housing Fund contributions
  • National Health Insurance contributions
  • Life Assurance Premium ( not exceeding 10% of earned income}
  • National Pension Contributions
  • Gratuities

4. Adjusted Income:

  •  Ascertain your gross income – and adjust this as follows.
  • Identify all other sources of earned income and add them
  •  Adjust for all the items on item 3 above.
  •  Now determine and sum the total earned income

5. Tax Payable (PAYE)

  • Determine and deduct all relief due to your person ( consolidate Relief Allowance) as in  item 1 above.
  • Now apply the relevant tax rate at the relevant income slab as in item No. 2 above to determine your tax liability..
  • Get more information here


Personal Income Tax (PIT) Formula: PAYE Computation


6. The Formula:

Gross Earnings + Other Earnings – Allowable Expenses = Adjusted Income ………Formula 1
Formula 1 figure – Consolidated Relief = Taxable Income…………………………………Formula 2

7. PAYE Payable:

Now apply the tax rate as in item 2 above, and add all the derived tax figure.
8. Work out the cumulative tax (PAYE) to date and make necessary adjustment, especially at the last month of the fiscal/tax  year.
Click here to check where an employee has other streams of unearned incomes that need to be adjusted for tax purpose.

Personal Income Tax (PIT) Formula: PAYE Computation

Personal Income Tax (PIT) Formula: PAYE Computation

9. Illustration I:                                                                              N        K            N    K

ConsolidatedSalaries ( Adjusted income)                                                              226,800.00
Less: Consolidated relief ( 200,000 + 20%(226,800)                  245,360.00
          Pension Contribution (8% of 226,800)                                18,144.00
          NHF (2.5% of 226,800)                                                          5,670.00
Total Relief                                                                                                              (269,174.00 ) 
 Taxable Income                                                                                                       (41,240.00)
Minimum annual tax – 1% of 226,800)                                                                       2,268.00
Monthly tax  = 2268           =                                                                                         189.00
                           12

Note: No taxable income was generated. Applicable tax is lower than the minimum tax.

Illustration II

                                                                                                      N   K                  N      K   
Consolidated Salary                                                                                              2,373,301                                                                   
Less: Consolidated relief ( 200,000 + 20%(2,373,301)                674,660.20
          Pension Contribution (8% of 2,373,301)                             177,997.57
          NHF (2.5% of 2,373,301)                                                      59,332.53
Total Relief                                                                                                              (911,990.30 )  
 Taxable Income                                                                                                     1,461,310.70

Computation of Tax Payable:

First 300,000 @ 7%                                                                      21,000.00
Next 300,000 @ 11%                                                                    33,000.00
Next 500,000 @ 15%                                                                    75,000.00
Balance of 361,310.70 @ 19%                                                      68,649.03
Annual Tax                                                                                    197,649.03
                                                                                                       ========
Monthly Tax  =  197,649.03/12    =                                                16,470.75
                                                                                                        =======   

READ ALSO:

Personal Income Tax (PIT) Equation: PIT Computation for Sole Proprietor
Computation of Sole Proprietor’s Tax Liability in Nigeria
Sole Proprietor & Partnership Tax Conditions in Nigeria
Facts You need to Know About Sole Trader’s Tax liability
How do I work out my taxable income in Nigeria?
How companies get their TCC
How Start-ups Get TIN
Business Initial TCC
How to Apply for Company Annual Tax Return Riling
How to Obtain Individual Tax Clearance Certificates
Individual Annual Tax Returns & TCC
Track Your With-holding Tax Credits :

Personal Income Tax (PIT) Formula: PAYE Computation

 Are You  catching the show?

These are simplified equation processes and methods through which you can personally attempt to calculate your PAYE. As you can see, they are good for individuals, workers, Accounting and Taxation students. Other beneficiaries of this would include the  wages clerks, Office Managers, and human resources personnel who deal with labour matters. However, if you need further explanations, send mail to cfmclimited@gmail.com. Contact us also if you want to resolve your PAYE tax matters. 
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Personal Income Tax (PIT) Formula: PAYE Computation

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