LEGAL WAYS TO AVOID EMPLOYMENT INCOME TAX.
Employment income is described as an amount paid to a person who is or was at the time of the employment or when the services were rendered, a resident person in respect of any employment or services rendered by him in Kenya or outside Kenya, the income consists of wages, salary, leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, gratuity, or subsistence, traveling, entertainment or other allowance received in a year of income other than the year of income.
Mortgage Relief Section 5(3)b) ITA
A simple definition of a mortgage loan is a type of loan you can use to buy a home without having all the cash upfront.
- Mortgage Tax Relief is an amount of money that Kenya revenue authority allows a taxpayer to claim as a relief from the amount of loan interest he or she pays monthly, the amount is limited to Kshs 25,000 monthly and Kshs 300,000 per year. The loan should be from a specified financial institution as listed in the fourth schedule, Examples are
- the bank registered under the Banking Act
- an insurance company licensed under the Insurance Act
- a building society registered under the building societies Act
- The National Housing Corporation
Invest in a tax-free environment
A tax-free zone involves the activities in which a taxpayer is not charged tax on the interest they receive from the investment, the best institution to invest in are;
a)M-Akiba bond
b)Post Office Savings Bank- income from your fixed deposits is tax exempted
Take insurance cover
insurance Premium Tax Relief is a benefit offered by the Government to all insurance policyholders, these incentives reduce the amount of tax one has to pay and are granted monthly the rate is 15% to a maximum of 60,000.
Section 31 of the income tax act says that :(A resident individual who proves that in a year of income he has paid a premium for insurance made by him on his life, or the life of his wife or of his child and that the insurance secures a capital sum whether or not in conjunction with another benefit, and that the insurance is made with an insurance company lawfully carrying on in Kenya the business of life insurance, and that sums payable under the insurance are payable in Kenya in the lawful currency of Kenya; or
- his employer has paid a premium for that insurance on the life, and for the benefit, of that individual which is charged with tax under this Act on that individual; or
- he, as well as his employer, has paid a premium for the insurance referred to in paragraph (b); shall, for that year of income, be entitled to a personal relief in this Act referred to as the insurance relief:)
Register with a retirement benefits scheme
Anyone earning an income can join a pension scheme. The Retirement Benefits Authority registers any individual who is employed to pension schemes in Kenya. Contributors enjoy a maximum tax benefit of 20,000 monthly or 30 percent of pensionable emoluments, whichever one is less.
Registered and contribute to a Registered home ownership savings plan
Employees are eligible for a deduction to a maximum of Kshs. 4,000 per month (Kshs. 48,000 per annum), If the contribution is done a “Registered Home Ownership Plan” (HOSP), to an approved institution. registered by the Commissioner and the employee does not possess an interest in a permanent house.
Get disability relief
Disable person is an individual under a legal disability” includes a minor or an individual who is unable to comply with the requirements of tax law because he or she is impaired by a physical or mental disability; Persons living with disabilities with a valid exemption certificate are exempted from income tax on their taxable income of Ksh150,000 per month and up to Ksh1,800,000 per annum.
Conclusion
These are just a few of the many ways in which employees can reduce the amount of tax they pay per month legally. Do you need professional help from a tax expert or consultant? Let us know how we can help you make sure your,
