{"id":5551,"date":"2025-12-31T17:24:29","date_gmt":"2025-12-31T17:24:29","guid":{"rendered":"https:\/\/www.adeolaoyinlade.com\/?p=5551"},"modified":"2025-12-31T17:24:29","modified_gmt":"2025-12-31T17:24:29","slug":"understanding-personal-income-tax-under-the-nigerian-tax-act-2025","status":"publish","type":"post","link":"https:\/\/www.adeolaoyinlade.com\/en\/understanding-personal-income-tax-under-the-nigerian-tax-act-2025\/","title":{"rendered":"Understanding Personal Income Tax Under the Nigerian Tax Act 2025"},"content":{"rendered":"<p><strong>\u00a0<\/strong><\/p>\n<ol>\n<li><strong> Introduction<\/strong><\/li>\n<\/ol>\n<p>The Nigeria Tax Act, 2025 (\u201cthe Act\u201d) was signed into law on <strong>June 26, 2025<\/strong>, and is set to take effect from <strong>January 1, 2026<\/strong>. This new legislation marks a major reform of Nigeria\u2019s tax system. It<strong> repeals several existing tax laws<\/strong>, including the <em><strong>Personal Income Tax Act<\/strong><\/em>, and <em>consolidates all major tax provisions into a single, comprehensive statute.<\/em><\/p>\n<p>In this article, we focus on the <strong>personal income tax<\/strong> aspects of the Act. Specifically, we examine the <strong>new tax rates<\/strong><strong>, <\/strong>the <strong>allowable deductions<\/strong><strong>,<\/strong> and how <strong>taxable income<\/strong> is determined under the updated framework. The aim is to explain these provisions in clear and practical terms, highlighting what they mean for individual taxpayers in Nigeria.<\/p>\n<ol start=\"2\">\n<li><strong> Scope of Application <\/strong><\/li>\n<\/ol>\n<p>The law applies to <strong>individuals whose income is considered to arise in Nigeria<\/strong><strong>,<\/strong> whether or not that income is actually received or brought into the country.<a href=\"#_ftn1\" name=\"_ftnref1\">[1]<\/a> In other words, if you earn money that is connected to Nigeria in some way, you may be required to pay tax on it even if the payment happens abroad.<\/p>\n<p><strong>2.1 Who is considered a resident individual?<\/strong><\/p>\n<p>An individual is regarded as a <strong>resident<\/strong> for tax purposes in a particular year if any of the following apply:<a href=\"#_ftn2\" name=\"_ftnref2\">[2]<\/a><\/p>\n<ul>\n<li><strong>Domicile:<\/strong> The person\u2019s permanent home is in Nigeria. This means Nigeria is where the person ultimately intends to live and return to, even if they temporarily live elsewhere.<\/li>\n<li><strong>Permanent home in Nigeria:<\/strong> The person has a permanent place available for personal or family use in Nigeria, such as a house or apartment whether owned or rented.<\/li>\n<li><strong>Habitual abode:<\/strong> The person regularly lives in Nigeria or spends most of their time here.<\/li>\n<li><strong>Economic and family ties:<\/strong> The person has strong business or financial interests in Nigeria, or their immediate family (spouse, children, dependents) live in Nigeria.<\/li>\n<li><strong>Physical presence:<\/strong> The person spends a total of <strong>183 days or more<\/strong> in Nigeria during any 12-month period. These days don\u2019t have to be consecutive they can add up over multiple visits.<\/li>\n<li><strong>Diplomatic service:<\/strong> Nigerian diplomats or diplomatic agents serving abroad are still treated as residents for tax purposes.<\/li>\n<\/ul>\n<p>A <strong>resident<\/strong> individual, therefore, is someone whose life, work, or family is substantially tied to Nigeria.<\/p>\n<ul>\n<li><strong>What about non-residents?<\/strong><\/li>\n<\/ul>\n<p>People who are <strong>not resident<\/strong> in Nigeria are only taxed on income that is <strong>earned in or derived from Nigeria<\/strong><strong>.<a href=\"#_ftn3\" name=\"_ftnref3\">[3]<\/a><\/strong><br \/>\nFor example, if a foreign consultant provides services to a Nigerian company and is paid for that work, that income is taxable in Nigeria. However, if the same person earns income from a source outside Nigeria that has nothing to do with Nigeria, that income is not taxable by Nigeria.<\/p>\n<ol start=\"3\">\n<li><strong> TAXABLE INCOME <\/strong><\/li>\n<\/ol>\n<p>Section 4 of the Act defines the income, profits, or gains that are chargeable to tax. For individuals, taxable income includes several categories as outlined in the relevant provisions of the law.<\/p>\n<p><strong>3.1 Employment income<\/strong>: covers all forms of compensation or rewards received in respect of employment. This includes salaries, wages, fees, allowances, compensations, bonuses, premiums, benefits, or any other perquisites granted by an employer to an employee.<a href=\"#_ftn4\" name=\"_ftnref4\">[4]<\/a><\/p>\n<p><strong>3.2<\/strong> <strong>Business and professional income:<\/strong> includes profits or gains derived from any trade, business, profession, or vocation.<a href=\"#_ftn5\" name=\"_ftnref5\">[5]<\/a><\/p>\n<p><strong>3.3 Investment income<\/strong> is also taxable under the Act. This includes dividends, premiums, charges, or annuities; royalties, fees, rents, or interest arising from the use, exploitation, or occupation of any property; and income, profits, or gains from the disposal or lending of securities.<a href=\"#_ftn6\" name=\"_ftnref6\">[6]<\/a><\/p>\n<p><strong>3.4 Capital gains<\/strong>: these are gains accruing to any person in a year of assessment, which are chargeable to tax from the disposal of certain assets.<a href=\"#_ftn7\" name=\"_ftnref7\">[7]<\/a> Section 34 further defines chargeable assets to include all types of property, shares, options, rights, debts, digital or virtual assets, and incorporeal property, making it clear that both tangible and intangible assets are covered.<\/p>\n<p><strong>3.5 Pension income<\/strong> is also taxable and it includes any pension, annuity, or similar periodic payment received by an individual.<a href=\"#_ftn8\" name=\"_ftnref8\">[8]<\/a><\/p>\n<p><strong>3.6 Other taxable income sources<\/strong>: These include fees, dues, allowances, or remuneration for services rendered; discounts or rebates; disposal of money or money instruments; prizes, winnings, honoraria, grants, or awards; as well as profits or gains from the disposal of property, fixed assets, or from transactions in digital or virtual assets.<a href=\"#_ftn9\" name=\"_ftnref9\">[9]<\/a><\/p>\n<ol start=\"4\">\n<li><strong>Exempted income<\/strong><\/li>\n<\/ol>\n<p>Section 163 lists the types of income that are exempt from tax under Chapter Two of the Act. Key exemptions for individuals include:<\/p>\n<p><strong>4.1 Income from Exempt Organizations<\/strong><br \/>\nProfits or gains from educational, religious, or charitable activities of a public nature, provided the income is not from a trade or business.<\/p>\n<p><strong>4.2 Certain Investment Income<\/strong><br \/>\nDividends from approved collective investment schemes, dividends from wholly export-oriented businesses, and income such as dividends, interest, rent, or royalties earned abroad and brought into Nigeria through approved channels.<\/p>\n<p><strong>4.3 Pensions and Retirement Benefits<\/strong><br \/>\nIncome from pension funds created under the Pension Reform Act, pensions or gratuities paid in line with the Act, and wound or disability pensions paid to members of the armed forces.<\/p>\n<p><strong>4.4 Compensation<\/strong><br \/>\nDeath gratuities or compensation for injury, and redundancy or severance payments that are capital in nature.<\/p>\n<p><strong>4.5 Minimum Wage Earners<\/strong><br \/>\nIncome from employment is exempt where the person earns the national minimum wage or less.<\/p>\n<p><strong>4.6 Military Wages and Salaries<\/strong><br \/>\nWages and salaries paid to members of the armed forces are exempt.<\/p>\n<p><strong>4.7 Agricultural Income<\/strong><br \/>\nIncome from agricultural businesses is exempt for the first five years after the business begins.<\/p>\n<p><strong>4.8. Export Profits<\/strong><br \/>\nProfits from goods or services exported from Nigeria are exempt if the proceeds are brought back through official channels (excluding petroleum operations).<\/p>\n<ol start=\"5\">\n<li><strong> Exempted gains<\/strong><\/li>\n<\/ol>\n<p>Section 163(2) also identifies certain gains that are not taxable:<\/p>\n<p><strong>5.1 Principal Private Residence<\/strong><br \/>\nGains from selling one\u2019s main home and the land around it (up to one acre) are exempt, once in a lifetime.<\/p>\n<p><strong>5.2 Personal Chattels<\/strong><br \/>\nGains from selling personal belongings worth \u20a65,000,000 or less, or up to three times the national minimum wage, are exempt.<\/p>\n<p><strong>5.3 Motor Vehicles<\/strong><br \/>\nUp to two private or non-commercial vehicles per year are exempt from capital gains tax.<\/p>\n<p><strong>5.4 Gifts<\/strong><br \/>\nGains from giving or receiving assets as gifts (other than through inheritance) are exempt.<\/p>\n<p><strong>5.5 Personal Injury Compensation<\/strong><br \/>\nCompensation up to \u20a650,000,000 for personal injury, professional loss, or loss of employment is exempt. Only the excess above \u20a650,000,000 is taxable.<\/p>\n<p><strong>5.6 Pension Fund Disposals<\/strong><br \/>\nGains from investments made by approved pension or retirement funds are exempt.<\/p>\n<p><strong>5.7 Military Decorations<\/strong><br \/>\nGains from selling medals or decorations awarded for bravery or service are exempt if they were not bought for money.<\/p>\n<ol start=\"6\">\n<li><strong> ELIGIBLE DEDUCTIONS<\/strong><\/li>\n<\/ol>\n<p>Section 30(2)(a) defines eligible deductions as payments made by an individual in a year of assessment in respect of the following:<\/p>\n<p><strong>6.1 National Housing Fund Contributions<\/strong><br \/>\nContributions made under the National Housing Fund are deductible.<\/p>\n<p><strong>6.2. National Health Insurance Scheme Contributions<\/strong><br \/>\nContributions made under the National Health Insurance Scheme are deductible.<\/p>\n<p><strong>6.3 Pension Contributions<\/strong><br \/>\nContributions made under the Pension Reform Act are deductible.<\/p>\n<p><strong>6.4 Interest on Housing Loans<\/strong><br \/>\nInterest paid on loans taken for developing an owner-occupied residential house is deductible.<\/p>\n<p><strong>6.5 Life Insurance and Annuity Premiums<\/strong><br \/>\nAny annuity or premium paid in the year preceding the year of assessment for insurance on the individual\u2019s life or that of their spouse, or for a deferred annuity contract, is deductible.<\/p>\n<p><strong>6.6 Rent Relief<\/strong><br \/>\nTwenty percent (20%) of annual rent paid, up to a maximum of \u20a6500,000 (whichever is lower), is deductible, provided the actual amount of rent paid is accurately declared<em>:<\/em> An individual paying \u20a63,000,000 annual rent is entitled to a 20% deduction (\u20a6600,000), but since the amount exceeds the \u20a6500,000 cap, the deductible amount is <strong>\u20a6500,000<\/strong>.<\/p>\n<p>&nbsp;<\/p>\n<ol start=\"7\">\n<li><strong> PERSONAL INCOME TAX RATES AND BAND <\/strong><\/li>\n<\/ol>\n<p>The <strong>Fourth Schedule<\/strong> of the Personal Income Tax Act sets out how personal income tax is calculated in Nigeria.<a href=\"#_ftn10\" name=\"_ftnref10\">[10]<\/a> The tax is imposed on <strong>chargeable income<\/strong>, which is the portion of a person\u2019s income that remains after all applicable <strong>relief allowances and exemptions<\/strong> have been deducted under <strong>Section 30(1)<\/strong> of the Act.<\/p>\n<p>The Fourth Schedule establishes <strong>six progressive tax bands<\/strong>, meaning that the more you earn, the higher the rate of tax you pay on the additional income not on your entire income. The bands are as follows:<\/p>\n<p><strong>Band 1: First \u20a6800,000 at 0%<\/strong><\/p>\n<p>The first \u20a6800,000 of annual income is completely <strong>tax-free<\/strong>.<br \/>\nFor example, if an individual earns \u20a6700,000 in a year, they will pay <strong>no tax<\/strong> at all since the entire income falls below the \u20a6800,000 threshold.<\/p>\n<p><strong>Band 2: Next \u20a62,200,000 at 15%<\/strong><\/p>\n<p>Income that exceeds \u20a6800,000 but does not go beyond \u20a63,000,000 is taxed at <strong>15%<\/strong>.<br \/>\nFor instance, if an individual earns \u20a61,200,000 in a year, the first \u20a6800,000 is tax-free, while the remaining \u20a6400,000 is taxed at 15%. This gives a total tax of \u20a660,000.<br \/>\nIf the individual earns \u20a63,000,000, the first \u20a6800,000 remains tax-free, and the next \u20a62,200,000 is taxed at 15%, resulting in \u20a6330,000 in tax.<\/p>\n<p><strong>Band 3: Next \u20a69,000,000 at 18%<\/strong><\/p>\n<p>Income above \u20a63,000,000 and up to \u20a612,000,000 is taxed at <strong>18%<\/strong>.<br \/>\nFor example, if someone earns \u20a66,000,000 in a year, the first \u20a6800,000 is tax-free, the next \u20a62,200,000 is taxed at 15% (\u20a6330,000), and the remaining \u20a63,000,000 is taxed at 18% (\u20a6540,000). This brings the total tax payable to <strong>\u20a6870,000<\/strong>.<\/p>\n<p><strong>Band 4: Next \u20a613,000,000 at 21%<\/strong><\/p>\n<p>Income above \u20a612,000,000 and up to \u20a625,000,000 is taxed at <strong>21%<\/strong>.<br \/>\nFor instance, if an individual earns \u20a615,000,000 annually, the first \u20a6800,000 is tax-free, the next \u20a62,200,000 is taxed at 15% (\u20a6330,000), the following \u20a69,000,000 is taxed at 18% (\u20a61,620,000), and the remaining \u20a63,000,000 is taxed at 21% (\u20a6630,000). Altogether, the person will pay <strong>\u20a62,580,000<\/strong> in tax.<\/p>\n<p><strong>Band 5: Next \u20a625,000,000 at 23%<\/strong><\/p>\n<p>Income that exceeds \u20a625,000,000 but does not go beyond \u20a650,000,000 is taxed at <strong>23%<\/strong>.<br \/>\nFor example, if an individual earns \u20a640,000,000 annually, the first \u20a6800,000 is tax-free, the next \u20a62,200,000 is taxed at 15% (\u20a6330,000), the following \u20a69,000,000 is taxed at 18% (\u20a61,620,000), the next \u20a613,000,000 is taxed at 21% (\u20a62,730,000), and the remaining \u20a615,000,000 is taxed at 23% (\u20a63,450,000). The total tax payable in this case amounts to <strong>\u20a68,130,000<\/strong><strong>.<\/strong><\/p>\n<p><strong>Band 6: Above \u20a650,000,000 at 25%<\/strong><\/p>\n<p>Any income exceeding \u20a650,000,000 is taxed at <strong>25%<\/strong>.<br \/>\nFor example, if an individual earns \u20a660,000,000 in a year, the first \u20a6800,000 is tax-free, the next \u20a62,200,000 is taxed at 15% (\u20a6330,000), the following \u20a69,000,000 is taxed at 18% (\u20a61,620,000), the next \u20a613,000,000 is taxed at 21% (\u20a62,730,000), and the next \u20a625,000,000 is taxed at 23% (\u20a65,750,000). The remaining \u20a610,000,000 (which exceeds \u20a650,000,000) is taxed at 25%, giving \u20a62,500,000. In total, the tax payable on \u20a660,000,000 amounts to<strong> \u20a612,930,000.<\/strong><\/p>\n<ol start=\"8\">\n<li><strong> Computation of Chargeable Income <\/strong><\/li>\n<\/ol>\n<p><strong>Total income<\/strong> as an individual\u2019s <strong>taxable income minus total deductions<\/strong>.<a href=\"#_ftn11\" name=\"_ftnref11\">[11]<\/a><\/p>\n<p><strong>Taxable income<\/strong> includes:<\/p>\n<ul>\n<li>Profits from trade, business, or profession;<\/li>\n<li>Employment income;<\/li>\n<li>Investment income;<\/li>\n<li>Income from any other source; and<\/li>\n<li>Chargeable gains from asset disposals.<\/li>\n<\/ul>\n<p><strong>Total deductions<\/strong> include:<\/p>\n<ul>\n<li>Losses;<\/li>\n<li>Capital allowances;<\/li>\n<li>Tax-exempt income; and<\/li>\n<li>Income already taxed at source as final tax.<\/li>\n<\/ul>\n<p>Thus, <strong>chargeable income<\/strong> is what remains after deducting all eligible deductions from total income.<a href=\"#_ftn12\" name=\"_ftnref12\">[12]<\/a><\/p>\n<ol start=\"9\">\n<li><strong> Conclusion <\/strong><\/li>\n<\/ol>\n<p>The Nigeria Tax Act, 2025 consolidates personal income tax rules into a single framework, outlining clear tax rates, deductions, and exemptions for individuals. It provides a structured basis for determining taxable income and ensures consistency in the application of personal income tax from January 1, 2026.<\/p>\n<p><strong>Author<\/strong><\/p>\n<p>Felicia Ayeomoni<\/p>\n<p>Associate<\/p>\n<p>Email:\u00a0lawyers@adeolaoyinlade.com<\/p>\n<p>____________________<\/p>\n<p>Consistently ranked as the \u201cNigerian Law Firm of the Year\u201d (2024 &amp; 2025) and Tier 1 law firm by The Lawyers Global, Adeola Oyinlade &amp; Co is recognized as a top provider of tax law services in Nigeria for its lawyers ability to handle both tax advisory (structuring transactions) and tax litigation (disputes with the FIRS now called Nigeria Revenue Service- NRS or State Internal revenue Services). You may reach out to us for more information and enquiries via\u00a0info@adeolaoyinlade.com\u00a0or call +234 802 686 0247 \/ +234 803 826 7683.<\/p>\n<p><a href=\"#_ftnref1\" name=\"_ftn1\">[1]<\/a> The Nigeria Tax Act 2025, section 12.<\/p>\n<p><a href=\"#_ftnref2\" name=\"_ftn2\">[2]<\/a> The Nigeria Tax Act 2025, section 202.<\/p>\n<p><a href=\"#_ftnref3\" name=\"_ftn3\">[3]<\/a> The Nigeria Tax Act 2025, section 17 (1).<\/p>\n<p><a href=\"#_ftnref4\" name=\"_ftn4\">[4]<\/a> The Nigeria Tax Act 2025, section 13 (1).<\/p>\n<p><a href=\"#_ftnref5\" name=\"_ftn5\">[5]<\/a> The Nigeria Tax Act 2025, section 4 (1) (a).<\/p>\n<p><a href=\"#_ftnref6\" name=\"_ftn6\">[6]<\/a> The Nigeria Tax Act 2025, section 4 (1) (b), (c), (q).<\/p>\n<p><a href=\"#_ftnref7\" name=\"_ftn7\">[7]<\/a> The Nigeria Tax Act 2025, section 33.<\/p>\n<p><a href=\"#_ftnref8\" name=\"_ftn8\">[8]<\/a> The Nigeria Tax Act 2025, section 4 (2) (b).<\/p>\n<p><a href=\"#_ftnref9\" name=\"_ftn9\">[9]<\/a> The Nigeria Tax Act 2025, section 4 (1).<\/p>\n<p><a href=\"#_ftnref10\" name=\"_ftn10\">[10]<\/a> The Nigeria Tax Act 2025, section 58.<\/p>\n<p><a href=\"#_ftnref11\" name=\"_ftn11\">[11]<\/a> The Nigeria Tax Act 2025, section 28.<\/p>\n<p><a href=\"#_ftnref12\" name=\"_ftn12\">[12]<\/a> The Nigeria Tax Act 2025, section 30.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u00a0 Introduction The Nigeria Tax Act, 2025 (\u201cthe Act\u201d) was signed into law on June 26, 2025, and is set to take effect from January 1, 2026. This new legislation marks a major reform of Nigeria\u2019s tax system. It repeals several existing tax laws, including the Personal Income Tax Act, and consolidates all major tax [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":5552,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[],"class_list":["post-5551","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.8 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Understanding Personal Income Tax Under the Nigerian Tax Act 2025 - Adeola Oyinlade &amp; Co<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.adeolaoyinlade.com\/en\/understanding-personal-income-tax-under-the-nigerian-tax-act-2025\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Understanding Personal Income Tax Under the Nigerian Tax Act 2025 - Adeola Oyinlade &amp; Co\" \/>\n<meta property=\"og:description\" content=\"\u00a0 Introduction The Nigeria Tax Act, 2025 (\u201cthe Act\u201d) was signed into law on June 26, 2025, and is set to take effect from January 1, 2026. This new legislation marks a major reform of Nigeria\u2019s tax system. 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