Calculate Income Tax in Kenya (2024): Salary KRA Deductions | NSSF, SHA

Kenya’s tax system has undergone several updates over the years, with the Kenya Revenue Authority (KRA) introducing policies to help improve compliance while balancing individual and corporate tax obligations. If you’re wondering how to calculate your income tax in Kenya, here’s a simplified guide to help you understand the process and the most recent deductions.

Understanding Taxable Income in Kenya

Income tax in Kenya is levied on earnings from employment, business, and investments. For individuals, the main taxable components include:

• Basic salary
• Bonuses and commissions
• Allowances (e.g., transport, housing, and medical allowances)
• Fringe benefits provided by the employer

Tax is computed based on gross income minus the allowable deductions, such as retirement contributions and insurance premiums, which are recognized by KRA.

Current KRA Income Tax Bands for Individuals (2024)

As of 2024, the personal income tax rates in Kenya are progressive, which means higher income brackets are taxed at higher rates. The income tax bands are as follows:

• KES 0 – KES 24,000: 10%
• KES 24,001 – KES 32,333: 15%
• KES 32,334 – KES 50,000: 20%
• KES 50,001 – KES 69,000: 25%
• KES 69,001 and above: 30%

These rates apply to gross monthly earnings after allowable deductions have been applied.

Deductions and Reliefs

Deductions are essential in determining your taxable income, and KRA allows several key deductions:

Personal Relief: Every individual taxpayer is entitled to a personal relief of KES 2,400 per month or KES 28,800 per annum.

National Social Security Fund (NSSF): The mandatory contributions to NSSF are deductible, with the pension contribution being KES 1,080 per month or KES 12,960 per year.

Social Health Authority (SHA): Though not directly deductible from taxable income, contributions to the SHA ensure you’re covered for medical expenses and count towards health reliefs.

Retirement Benefits Schemes: Contributions to a registered pension scheme are deductible up to KES 20,000 per month or KES 240,000 per annum.

Insurance Relief: KRA provides tax relief for premiums paid on life insurance, education, or health insurance policies, up to 15% of the premium or a maximum of KES 5,000 per month (KES 60,000 annually).

Social Health Authority (SHA) Contributions and Their Effect on Income Tax

Just like the NHIF, contributions to the SHA are mandatory for all employees. However, the new structure and rates differ from the NHIF, with contributions now based on an individual’s income bracket, ensuring a more equitable contribution system. This change is supposedly designed to improve service delivery and health insurance coverage.

New SHA Contribution Rates

The Social Health Authority (SHA) rates are progressive, meaning individuals with higher incomes will contribute more than those with lower earnings. The exact rates are still being finalized, but here’s the general breakdown based on the latest guidelines (subject to official confirmation from KRA):

• Low-income earners (earning up to KES 10,000): Contributions range between KES 300 to KES 500.
• Middle-income earners (earning between KES 10,001 to KES 100,000): Contributions are expected to range between KES 600 to KES 3,000.
• High-income earners (earning above KES 100,000): Contributions could reach up to KES 5,000 or more, depending on salary.

These contributions are deducted monthly from your gross income, and they count towards your health insurance coverage under the SHA. While SHA contributions are not directly deducted from taxable income like NSSF, they are vital in ensuring you’re covered for medical expenses.

SHA and Tax Relief

Although SHA contributions themselves are not deductible from your taxable income, they do offer indirect relief by providing health coverage, reducing out-of-pocket healthcare expenses. This aligns with KRA’s focus on protecting employees from excessive medical bills, thus improving financial security.

How SHA Affects PAYE Calculation

When calculating PAYE, SHA contributions are part of the deductions taken from your gross income before determining your final take-home pay. Here’s how it fits into the overall tax computation:

Example: If you earn KES 70,000 and fall under the middle-income earner bracket, your SHA contribution could be KES 2,000.

• Gross salary: KES 70,000
• SHA contribution: KES 2,000
• NSSF contribution: KES 1,080
• Retirement/pension scheme: KES 5,000
• Insurance relief: KES 2,500

Total deductions before tax = KES 10,580

Your taxable income = KES 70,000 – KES 10,580 = KES 59,420.

You would then proceed with the same PAYE calculation process mentioned earlier, applying the relevant tax bands to the adjusted taxable income.

Filing SHA Contributions

Similar to NHIF, SHA contributions will be filed alongside your annual income tax returns via the iTax portal. Failure to make SHA contributions could result in penalties, and the Kenya Revenue Authority will ensure that both employer and employee compliance is monitored.

PAYE Calculator Kenya – Calculating PAYE (Pay As You Earn) 

PAYE is deducted directly from an employee’s salary. Here’s a step-by-step guide to calculating PAYE in Kenya on a gross salary:

PAYE Formula:

    Determine Gross Income:

        Gross Income = Basic Salary + Allowances (e.g., housing, transport) + Bonuses

    Subtract Allowable Deductions:

        Deduct NSSF contribution

        Deduct Retirement Contributions (up to KES 20,000 per month)

        Deduct any other approved deductions (e.g., Insurance Relief)

    Taxable Income = Gross Income – Allowable Deductions

    Apply the Tax Rates:

        The progressive tax bands (as of 2024) are:

            First KES 24,000: Tax at 10%

            Next KES 8,333 (24,001 – 32,333): Tax at 15%

            Next KES 17,667 (32,334 – 50,000): Tax at 20%

            Next KES 19,000 (50,001 – 69,000): Tax at 25%

            Above KES 69,000: Tax at 30%

    Total PAYE = Sum of tax across applicable income brackets

    Apply Personal Relief:

        Subtract KES 2,400 (monthly) or KES 28,800 (annually)

    Final PAYE = Total PAYE – Personal Relief

Example: Suppose you earn a gross monthly salary of KES 70,000, including allowances.

1. Add all taxable income:
   • Basic salary: KES 60,000
   • Housing allowance: KES 10,000
2. Total gross income = KES 70,000
3. Apply allowable deductions:
   • NSSF: KES 1,080
   • Pension scheme: KES 5,000 (for this example)
   • Insurance relief: KES 2,500
4. Total deductions = KES 8,580
   Taxable income = KES 70,000 – KES 8,580 = KES 61,420
5. Apply tax rates:
   • The first KES 24,000 is taxed at 10% = KES 2,400
   • The next KES 8,333 (24,001 – 32,333) is taxed at 15% = KES 1,250
   • The next KES 17,667 (32,334 – 50,000) is taxed at 20% = KES 3,533
   • The remaining KES 11,420 (50,001 – 61,420) is taxed at 25% = KES 2,855
6. Total PAYE = KES 10,038
7. Apply personal relief: Subtract the personal relief of KES 2,400 from the total PAYE.
   Net PAYE = KES 10,038 – KES 2,400 = KES 7,638

Therefore, the final PAYE deducted from your salary would be KES 7,638.

Filing and Paying Income Tax

In Kenya, all employed individuals and businesses are required to file tax returns through the iTax portal. Even if your income is exclusively subject to PAYE, you still need to file annual returns by 30th June each year.

Failure to file your returns or late filing attracts penalties, including:

• KES 2,000 or 5% of the tax due, whichever is higher, for individual taxpayers.
• Late payment penalties: 20% of the unpaid tax plus 1% interest per month until the full amount is settled.

Conclusion

Calculating your income tax in Kenya doesn’t need to be complicated, especially with the help of the KRA’s progressive tax system. Always ensure to keep updated on tax bands, allowable deductions, and reliefs that may apply to your situation. Remember, paying your taxes on time and filing returns is not only a legal obligation but also contributes to the growth and development of Kenya.