Personal income tax (PIT) applies to all individuals who are considered tax residents in Nigeria and earn taxable income above the N800,000 annual exemption threshold.
This includes salaried employees under the PAYE system, freelancers, self-employed persons, business owners, remote workers, and informal earners.
Residency status, rather than nationality, determines liability, meaning individuals who reside in Nigeria and derive income, whether locally or, in certain cases, from abroad, may be required to pay PIT once their taxable income exceeds the exemption limit.
Individuals earning the national minimum wage or less are fully exempt from personal income tax. Additionally, the annual gross income of up to approximately N1.2 million, equivalent to roughly N800,000 in taxable income after deductions, falls below the tax threshold.
The reforms also reduce PAYE liabilities for individuals earning up to N20 million annually, while several categories of income remain tax-exempt.
The scope of taxable income depends on an individual’s tax residency status under the Nigeria Tax Act 2025.
Tax residents are liable to personal income tax on their worldwide income, regardless of where the income is earned or received. This includes salaries from foreign employers, freelance or contract income from overseas clients, investment income, and gains from digital or online activities.
Non-residents are taxed only on income sourced from Nigeria, such as rental income from Nigerian property or profits attributable to a permanent establishment in Nigeria.
An individual is generally considered a tax resident in Nigeria if they are domiciled in the country, maintain a permanent home available for personal use, have substantial economic or immediate family ties in Nigeria, or are physically present in Nigeria for 183 days or more within 12 months.
Nigeria’s Double Taxation Agreements (DTAs) with several countries provide relief mechanisms to prevent the same income from being taxed twice.
Under the Nigeria Tax Act 2025, remittances, gifts, loans, and bank deposits are not treated as taxable income.
Genuine family support and personal transfers are exempt, as are both cash and non-cash gifts. Loans are not taxable because they are liabilities, not earnings.
Simply holding money in a bank account is not taxed, although interest earned on deposits is subject to a 10 per cent withholding tax. A N50 Electronic Money Transfer Levy applies to electronic transfers of N10,000 or more and is paid by the sender. Banks also report accounts with high transaction volumes to tax authorities for compliance purposes.
Banks do not automatically deduct personal income tax (PAYE) from your account. Tax authorities rely on employer payroll records, self-assessment filings, or audits to collect income tax. While banks report accounts with high transaction volumes or apply small levies like the N50 Electronic Money Transfer Levy (EMTL) on transfers of N10,000 or more, these are not income taxes.
Allowable deductions are expenses incurred wholly, exclusively, necessarily, and reasonably in the production of taxable income.
National Housing Fund (NHF): Mandatory 2.5 per cent of your basic salary contributed to NHF is deductible. This helps fund affordable mortgage loans for contributors.
National Health Insurance Scheme (NHIS): Contributions to NHIS are deductible, ensuring part of your income spent on mandatory health coverage is tax-free.
Pension contributions: Both the statutory 8 per cent employee contribution and approved Additional Voluntary Contributions (AVCs) are deductible, encouraging long-term retirement savings.
Interest on loans for owner-occupied homes: Interest paid on loans for your own residence is deductible, promoting home ownership.
Life insurance and deferred annuity premiums: Premiums paid during the year preceding assessment for personal life or deferred annuity contracts are deductible, supporting long-term financial security. Proof of payment is required.
Rent relief: Up to per centent of annual rent paid, capped at N500,000, is deductible. You must provide tenancy agreements or payment receipts to claim this relief.
First N800,000 at 0% ;
Next N2,200,000 at 15% ;
Next N9,000,000 at 18% ;
Next N13,000,000 at 21% ;
Next N25,000,000 at 23% ;
Above N50,000,000 at 25%.
Step 1: Start with Gross Income
Step 2: Subtract Statutory Deductions
These reduce your taxable income:
Step 3: Apply the New Tax Bands
Tax is applied gradually across all bands, not at a flat rate.
Step 4: Divide by 12 to get the Monthly PAYE
Gross Monthly Salary: N70,000
Annual gross Income: N840,000