Tax reliefs Available Under the Personal Income Tax Act

In Nigeria, the Personal Income Tax Act (PITA) is the principal legislation that governs the taxation of individuals, communities, families, trustees, and estates. The PITA imposes a tax on the total income of taxable persons subject to a few exemptions which may be found under the Third Schedule to the PITA (Third Schedule), Items One and Two of the Sixth Schedule to the PITA, or under any other relevant provision of the PITA such as Sections 19 & 20.

In the table below, we examine the exempt income and allowable deductibles in computing the Personal Income Tax (PIT) liability of a taxable person in Nigeria.

Title & Relevant Section

Allowable Deductibles/Exemptions

Our Comments

Expenses that pass the WENR test

Section 20 (1)

Expenses wholly, exclusively, necessarily, and reasonably (WENR) incurred in the production of income are deductible for the purpose of ascertaining the income or loss of an individual for a relevant period of assessment.

While the WENR test is an umbrella provision that captures qualifying expenditure not envisaged by the draftsman, it does not provide a boundless latitude for taxable persons to indiscriminately deduct random expenses in computing their PIT liability. 

A limit to the WENR test may be found in Section 21 which makes disallowable certain specific expenses whether or not they appear to pass the WENR test. Similarly, tax authorities have the discretion to determine whether or not an item of expense meets the WENR test.

Interest Expense

Section 20(1)(a)&(b)

Interests payable on loan facilities procured and employed as capital in generating the income of an individual are deductible for the purpose of computing the PIT liability of the individual.

Similarly, mortgage interests paid by individuals for houses occupied by them are allowable as deductions for PIT purposes.


Rent/Accommodation Expense

Section 20(1)(c)&(d)

Rent payable on business premises is a deductible expense while computing the PIT liability of an individual. Likewise, expenses incurred for repair of business premises and equipment are deductible expenses.

However, where the business premises is also used for domestic/private purposes, the amount deductible would be limited only to those expenses relating to the business.


Bad Debt

Section 20(1)(e)

Bad debts proved to have become bad, and doubtful debts estimated to have become bad during the relevant period of assessment are deductible for PIT purposes.

Although, sums previously written off as bad or doubtful debts but later recovered are treated as income from the trade.


Research Expense

Section 20(1)(i)

Expenses incurred on research are deductible for PIT purposes (including the amount of levy paid by him under the National Agency for Science and Engineering Infrastructure Act).



Item (2), Sixth Schedule

The following contributions are deductible for PIT purposes:

1. National Pension Scheme

(10% of monthly emoluments to be remitted by the employer and 8% of monthly emoluments to be remitted by the employee)

2. National Housing Fund Contribution

(2.5% of an employee’s basic monthly salary)

3. National Health Insurance Scheme

4. Life assurance Premium

5. Gratuity

To reduce taxable income, some individuals choose to make higher pension contributions through Voluntary Pension Contributions.

The implication of a Voluntary Pension Contribution is that the individual enjoys a reduced taxable income and consequently a higher tax relief. Although, the employee’s monthly take-home would be reduced while his retirement savings account would have a higher balance.

It should be noted that only 1/3 of the income of an individual can be remitted as Voluntary Pension Contributions with such contributions being accessible only once every 2 years.

It is also significant that income tax would apply on all withdrawals from Voluntary Pension Contributions made within a 5-year period from the date the Voluntary Pension Contribution was made.

Consolidated Relief Allowance (CRA)

Section 33

CRA is an umbrella tax relief granted to all employees. CRA is deductible for the purpose of computing PIT liability.

CRA is granted at the higher of N200,000 or 1% of gross income + 20% of gross income. For the purpose of calculating CRA, gross income = income from all sources – (non-taxable income + income on which no further tax is payable + recognized contributions listed above + and all allowable expenses and capital allowance).

Section 29(a) of the Finance Act, 2020 amends the definition of “Gross Income” for the purpose of CRA to mean “income from all sources less all non-taxable income, income on which no further tax is payable, tax-exempt items listed in paragraph (2) of the Sixth Schedule and all allowable business expenses and capital allowance”.

In essence, this new definition increases the taxable income of an individual, thereby increasing the PIT liability and reducing the disposable income of the individual.


The law allows for the deduction of reimbursements made to an employee in computing the taxable income of such employee, where third-party invoices/receipts evidencing the expenses reimbursed for are provided.


Income of co-operative society, trade union, ecclesiastical body, or educational institution

Items 13, 16, 21, and 22 of the Third Schedule

The income of the following organizations is exempt from tax:

1. Ecclesiastical, charitable, or educational institution of a public character,

2. Trade union registered under the Trade Unions Act,

3. Statutory or registered friendly society,

4. Co-operative society registered under the Nigerian Co-operative Societies Act,

Provided the income is not derived from a trade or business carried on by any of the above



Item 25, Third Schedule

Dividends paid to a person by a Nigeria company where:

1. the equity participation of the person in the company is wholly paid for in foreign currency, and

2. the person to whom the dividends are paid owns not less than 10% of the equity share capital of the company.

The dividend tax-free period will commence from the year of assessment following the year in which the new capital was brought into Nigeria and will span for five years if the company paying the dividends is engaged in agricultural production or processing of agricultural products produced within Nigeria, or production of petrochemicals or liquified natural gas. In any other case, the tax-free period shall be limited to three years.

In other cases, dividends are subject to a 10% withholding tax which shall be the full and final tax payable on the dividend income. Section 71.

Compensation for loss of employment

17,18,23, and 26 of the Third Schedule

The following are deductible for PIT purposes:

1. Gratuities payable to a public officer by the Government,

2. Gratuities payable to an employee in the private sector,

3. Death gratuities or consolidated compensation for death or injuries, and

4. Compensation for loss of employment

Gratuity payments are tax deductible for PIT purposes if they are paid under an

approved pension scheme, otherwise, they are taxable.

Regarding compensation, Tax relief will only be granted if the amount paid as compensation was not pre-agreed before

the disengagement process began, otherwise, capital gains tax will apply. Pre-agreed amounts are generated from employment and are subject to PAYE.

Income earned abroad

Items 29, 30, and 31, of the Third Schedule

The following are deductible for PIT purposes:

1. Income earned from outside Nigeria by a temporary guest, lecturer, teacher, nurse, doctor and other professional and brought into Nigeria

2. Income from dividend, interest, rent, royalties, fee, commission earned from abroad and brought into Nigeria by a Nigerian resident

3. Income earned from abroad by an author, sportsman, playwright, musician, artist and brought into Nigeria

provided that such income is paid into a domiciliary account in a bank approved by the Government.


Earnings from Securities

Item 31 A, Third Schedule

Income earned from bonds issued by Federal, State, and Local Governments and their agencies; and bonds issued by corporate including supra-nationals are deductible for PIT purposes. Similarly, interest earned by holders of the bonds, and short-term securities listed above are deductible.

Note that the Lagos State’s Internal Revenue Service (LIRS) recently issued a Public Notice wherein it notified the public of the expiration of Nigeria’s 10 year PIT exemption on income earned on securities. The exemption which ended on January 1, 2022, was by virtue of the PIT (Exemption of Holders of Bonds and Short-Term Government Securities) Notice, 2011 (the ExemptionNotice).

The Exemption Notice which took effect on January 2, 2012, exempted from PIT, the income or interests earned on: (i) all short-term securities, such as treasury bills and promissory notes issued by the Federal Government of Nigeria (FGN); and (ii) bonds issued by corporate bodies and Government, that is, Federal, State, Local and Supranationals.

Earnings below minimum wage

Item 33, Third Schedule

The income of a who earns a gross income of National Minimum Wage or less is exempt from PIT

Minimum wage in Nigeria is N30,000.

Consular Fees

Items 5&11, Third Schedule

Consular fees received on behalf of a foreign State, or by a consular officer or employee of the State of his own account are exempt from PIT.

This exemption would not apply where the employee is engaged on domestic duties or where the officer or employee ordinarily resides in Nigeria and is not also a national of the foreign State.

Similarly, income exempt from tax under the provisions of the Diplomatic Immunities and Privileges Act is deductible for PIT purposes.


Interest Accruing to non-residents

Item 6, Third Schedule

Interest accruing to non-resident on the following are exempt from PIT:

(a) loan charged on the public revenue of the Federation and raised in the United Kingdom;

(b) a bond issued by the Government of the Federation to secure repayment of a loan raised from the International Bank for Reconstruction and Development.

(c) any money borrowed by the Government of the Federation or of a State on terms which include the exemption of interest from tax in the hands of a non-resident person;

(d) where the Minister of Finance so consents, the interest on any monies borrowed outside Nigeria by a corporation established by a law in Nigeria upon terms which include the exemption of such interest from tax in the hands of any non-resident person;

(e) deposit accounts, provided the deposits into the account are transfers wholly made up of foreign currencies (funds) to Nigeria on or after 1 January 1990 through Government-approved channels and the depositor does not become non-resident after making the transfer while in Nigeria.


Income of local government

Item 12, Third Schedule

The income of a local government or government institution is exempt from PIT.


Interest on agricultural loan

Item 7, Third Schedule

Interest on any loan granted by a bank to a person engaged in agricultural trade or business; and the fabrication of any local plant and machinery is exempt from PIT.


Income from Technical Service Assistance

Item 27, Third Schedule

The income of a foreigner employed by any government organization with which the Nigerian Government has an arrangement for technical assistance.


Interest on foreign currency domiciliary accounts

Item 28, Third Schedule

The interest accruing to a person on foreign currency domiciliary accounts is exempt from PIT.


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