New Personal Income Tax Bands Explained With Real Salary Examples

How it works

Personal income tax is charged on chargeable income, which is total taxable income less allowable deductions and reliefs. Tax is then applied band by band, in the same way as under the earlier system. Each rate applies only to the portion of income within that band.

Annual chargeable income and rates (as reported in published summaries of the Act)

Deductions and reliefs

Under the new framework, published summaries describe the following items as reducing chargeable income:

• Employee pension contributions
• National Housing Fund contributions
• National Health Insurance contributions
• Rent relief: 20% of annual rent paid, capped at ₦500,000

Other reliefs and exemptions apply in specific cases, for example minimum wage earners. Please confirm each against the Act.

Worked examples

The figures below are illustrations only. They assume the chargeable income shown and use the bands above.

Example 1: Chargeable income of ₦1,200,000

• First ₦800,000 at 0% = ₦0
• Next ₦400,000 at 15% = ₦60,000
• Annual tax: ₦60,000 (₦5,000 per month)

Example 2: Chargeable income of ₦3,000,000

• First ₦800,000 at 0% = ₦0
• Next ₦2,200,000 at 15% = ₦330,000
• Annual tax: ₦330,000 (₦27,500 per month)

Example 3: Chargeable income of ₦6,000,000

• First ₦800,000 at 0% = ₦0
• Next ₦2,200,000 at 15% = ₦330,000
• Next ₦3,000,000 at 18% = ₦540,000
• Annual tax: ₦870,000 (₦72,500 per month)

Example 4: Chargeable income of ₦12,000,000

• First ₦800,000 at 0% = ₦0
• Next ₦2,200,000 at 15% = ₦330,000
• Next ₦9,000,000 at 18% = ₦1,620,000
• Annual tax: ₦1,950,000 (₦162,500 per month)

Example 5: Gross pay of ₦9,600,000 with deductions
Assume the employee pays ₦768,000 in pension contributions and ₦1,500,000 in annual rent. These figures are assumed for illustration, since actual pension contributions depend on the pay components on which they are computed.

• Rent relief: 20% × ₦1,500,000 = ₦300,000 (within the ₦500,000 cap)
• Chargeable income: ₦9,600,000 − ₦768,000 − ₦300,000 = ₦8,532,000
• First ₦800,000 at 0% = ₦0
• Next ₦2,200,000 at 15% = ₦330,000
• Next ₦5,532,000 at 18% = ₦995,760
• Annual tax: ₦1,325,760 (about ₦110,480 per month)

What the NRS and the tax laws say

The NRS website lists the Nigeria Tax Act, 2025 among the tax laws it administers and provides a section for individual income tax. Because personal income tax for most individuals is administered by State Internal Revenue Services, employees and self-employed persons should also check guidance from their state authority (for example, the Lagos State Internal Revenue Service for Lagos residents).

Why this matters to taxpayers

• Take-home pay. Employers calculate PAYE on these bands, so the figures affect monthly pay.
• Documentation of reliefs. Rent relief and similar items depend on evidence. Keep tenancy agreements and payment records.
• Multiple income streams. Published commentary notes that income from all sources should be aggregated and reported.
• Digital income. Income received through digital platforms and payment providers leaves a record, so it should be reported.

Tax implications

• Capital gains of individuals are assessed under personal income tax rates, and gains on digital or virtual assets are within scope.
• Employers must apply the correct bands in PAYE. Errors can result in underpayment, penalties or interest.
• Self-employed individuals are expected to register, keep records and file annual returns.
• Filing deadlines quoted in published guides include 31 January for employers' annual PAYE returns and 31 March for individual annual returns. Please confirm against the current tax calendar on the NRS or your state authority's website.

Step by step: how to check your own tax

1. List all income for the year: salary, business income, rent, fees, investment income and gains.
2. Identify deductions: pension, NHF, NHIS, and rent paid.
3. Compute rent relief: 20% of rent paid, up to ₦500,000.
4. Arrive at chargeable income by deducting the eligible items from total income.
5. Apply the bands in order, as in the examples above.
6. Compare your result with the PAYE deducted by your employer through the year.
7. Keep records for each item claimed.
8. File any required return with the relevant authority before the deadline.

Why engage a professional consulting firm

• Computation accuracy. Bands, reliefs and cap limits are applied correctly.
• Correct classification of income. Employment, business and investment income are taxed differently.
• Evidence. A professional can advise on what documents support each relief.
• Payroll review. Employers can have PAYE workings checked against the current bands.
• Representation. A firm can respond to enquiries from the tax authority.

Why every taxpayer should comply

Tax paid under the law funds public services, and compliant records support loan applications, visa applications, tender submissions and tax clearance certificates. Filing late or under-reporting may lead to penalties, interest and further review.

Tips on reliefs and opportunities

• Track rent. Keep receipts and agreements to support the rent relief.
• Review pension contributions. Confirm they are reported on payslips.
• Consider timing. Check that reliefs are claimed in the correct tax year.
• Reconcile PAYE. Compare your annual payslip total with your own computation.
• Separate business and personal funds. This makes income easier to report.

Relevant law

• Nigeria Tax Act, 2025 (personal income tax provisions and schedules)
• Nigeria Tax Administration Act, 2025 (filing, penalties and administration)

Frequently asked questions

Is income up to ₦800,000 a year taxed? Under the bands reported for the Act, the first ₦800,000 of chargeable income is taxed at 0%.

Is the Consolidated Relief Allowance still available? Published summaries state that it has been abolished.

How much is rent relief? It is reported as 20% of annual rent paid, capped at ₦500,000.

Are these examples my exact tax? No. They are illustrations. Your tax depends on your specific income and deductions.

Do freelancers pay under the same bands? Individuals with business or professional income are generally taxed under the personal income tax bands, after allowable deductions.

Where you need further assistance: You may contact Prudential Consulting Limited, a professional tax consulting firm in Lagos, Nigeria.
📞 WhatsApp: 08056219998
📧 Email: info@prudentialconsulting.com.ng
🌐 Website: https://www.prudentialconsulting.com.ng

Footnote: This article is for general information only. The examples are illustrations, not complete investment, tax or legal advice. Readers should consult a qualified professional and check current guidance from the NRS and their State Internal Revenue Service before making any investment or tax decision.