New PAYE Computation Under the Nigeria Tax Act (NTA) 2025: Everything You Need to Know

The Nigeria Tax Act (NTA) 2025 introduces major reforms to how Pay-As-You-Earn (PAYE) income tax is computed for employees in both the private and public sectors.
If you’re a salary earner, HR professional, accountant, or employer, understanding the new PAYE rules is essential to ensure compliance and accurate payroll deductions.

This guide explains the new tax bands, allowable deductions, and the step-by-step process for calculating PAYE under the NTA 2025 — plus a practical example you can apply to any salary scale.

 

What Is PAYE?

PAYE (Pay-As-You-Earn) is the system through which employers deduct personal income tax from employees’ monthly salaries and remit it to the Federal Inland Revenue Service (FIRS) or the relevant State Internal Revenue Service (SIRS).

PAYE ensures that income tax is collected at source, making it easier for government agencies to administer and for individuals to meet their tax obligations without direct filing.

 

Overview of the New PAYE System Under NTA 2025

The NTA 2025 updates several key provisions in the Personal Income Tax system. These include:

1. Revised Tax Bands and Rates
   The progressive tax structure has been adjusted to make taxation more equitable.
   The new annual income tax bands are:

Tax Band (Annual Income)	Tax Rate
₦0 – ₦800,000	0%
₦800,001 – ₦3,000,000	15%
₦3,000,001 – ₦12,000,000	18%
₦12,000,001 – ₦25,000,000	21%
₦25,000,001 – ₦50,000,000	23%
Above ₦50,000,000	25%

1. This means low-income earners continue to enjoy full exemption up to ₦800,000, while higher-income earners pay progressively higher rates.
2. Abolition of the Consolidated Relief Allowance (CRA)
   Under the old tax regime, employees could claim a CRA of 20% of gross income plus ₦200,000.
   NTA 2025 has replaced CRA with a more targeted Rent Relief system.
3. Introduction of Rent Relief
   Taxpayers who pay rent for residential accommodation can now deduct a portion as relief.
   • Rent Relief = Lower of 20% of rent paid OR ₦500,000 per annum.
   • This encourages proper documentation of rent payments and benefits those who actually incur housing costs.
4. Clarification on Pensionable Emoluments
   For pension computation, only Basic Salary, Housing, and Transport Allowances are considered pensionable.
   • Minimum employee contribution: 8%
   • Minimum employer contribution: 10%

Only the employee portion (8%) is deductible from taxable income when computing PAYE.

1. Recognition of Other Statutory Deductions
   Deductions such as NHIS, NHF, life insurance premiums, or approved donations remain allowable — provided there is verifiable documentation.

 

Step-by-Step Process for PAYE Computation (NTA 2025)

Let’s outline how to compute PAYE accurately under the new law.

Step 1: Determine the Employee’s Gross Annual Income

Add all components of the employee’s compensation package:

Basic Salary + Housing Allowance + Transport Allowance + Utilities + Leave Allowance + Other Benefits.

Step 2: Identify Pensionable Emoluments

Pension applies only to Basic, Housing, and Transport.

Employee Pension = 8% × (Basic + Housing + Transport)

This is a deductible item before computing PAYE.

Step 3: Compute Rent Relief

Rent Relief = Lower of (20% × annual rent paid) or ₦500,000.
If no rent is paid (e.g., employer-provided accommodation), no rent relief applies.

Step 4: Compute Chargeable Income

Chargeable Income = Gross Income – (Pension + Rent Relief + Other Allowable Deductions)

Step 5: Apply the NTA 2025 Tax Bands

Use the progressive rates listed earlier to calculate the total annual tax liability.

Step 6: Determine Monthly PAYE

Monthly PAYE = Annual PAYE/12

This is the amount to be deducted from the employee’s monthly salary and remitted to the tax authority.

 

Practical Example

Key legal points used

• New personal income tax bands (NTA 2025) — 0% on first ₦800,000, then progressive bands (15%, 18%, 21%, 23%, 25%). (Used for the PAYE calculation).
• Rent relief replaces CRA: deductible = 20% of annual rent paid, capped at ₦500,000 (take the lower).
• Pension contributions (minimum): employee 8% and employer 10% of pensionable emoluments (pensionable = Basic + Housing + Transport). We’ll deduct the employee 8% from salary before computing tax. (This is the statutory minimum/conventional split used under the contributory pension regime).

 

1) Salary breakdown (annual and monthly)

Total annual gross salary = ₦12,000,000: monthly gross = ₦1,000,000

I’ll use this plausible breakdown (you can change percentages if you prefer):

• Basic = 40%: ₦4,800,000 p.a. (₦400,000/month)
• Housing = 30%: ₦3,600,000 p.a. (₦300,000/month)
• Transport = 10%: ₦1,200,000 p.a. (₦100,000/month)
• Utilities = 5%: ₦600,000 p.a. (₦50,000/month)
• Leave allowance = 5%: ₦600,000 p.a. (₦50,000/month)
• Other allowances = 10%: ₦1,200,000 p.a. (₦100,000/month)

 

2) Pension (employee) — based on Basic + Housing + Transport

Pensionable emoluments = Basic + Housing + Transport
= ₦4,800,000 + ₦3,600,000 + ₦1,200,000 = ₦9,600,000

Employee pension contribution (8%) = 8% × ₦9,600,000 = ₦768,000 per year
→ monthly employee pension = ₦64,000

(Employer usually contributes 10% = ₦960,000 — not a deduction from employee pay but shown for completeness).

 

3) Rent relief (allowed deduction) — two rent scenarios

Rent relief = lower of (20% of annual rent paid) or ₦500,000.

I’ll present two cases:

Case A — modest rent

• Annual rent paid = ₦1,000,000: 20% × rent = ₦200,000
• Rent relief allowable = ₦200,000 (since ₦200k < ₦500k)

Case B — higher rent

• Annual rent paid = ₦3,000,000: 20% = ₦600,000 but capped at ₦500,000
• Rent relief allowable = ₦500,000

 

4) Chargeable income = Gross income − allowable statutory deductions

Statutory deductions we apply here (per NTA): employee pension (8%) and rent relief (as above). (Other deductible items — e.g., NHIS, NHF, life insurance, documented loan interest — can also apply if applicable.

 

Case A (rent ₦1,000,000)

• Gross annual = ₦12,000,000
• Less employee pension = ₦768,000
• Less rent relief (20% of ₦1,000,000) = ₦200,000
  Chargeable income = ₦12,000,000 − ₦768,000 − ₦200,000 = ₦11,032,000

 

Case B (rent ₦3,000,000)

• Gross annual = ₦12,000,000
• Less employee pension = ₦768,000
• Less rent relief (capped) = ₦500,000
  Chargeable income = ₦12,000,000 − ₦768,000 − ₦500,000 = ₦10,732,000

 

5) PAYE calculation with NTA 2025 bands (worked out)

Used bands (annual taxable income: tax rate):

• ₦0 – ₦800,000 : 0%
• ₦800,001 – ₦3,000,000 : 15% (on amount within this band)
• ₦3,000,001 – ₦12,000,000 : 18%
• ₦12,000,001 – ₦25,000,000 : 21%
• ₦25,000,001 – ₦50,000,000 : 23%
• Over ₦50,000,000 : 25%.

Case A (Chargeable = ₦11,032,000)

Tax due:

• 0% on first ₦800,000 = ₦0
• 15% on next (₦3,000,000 − ₦800,000) = 15% × ₦2,200,000 = ₦330,000
• 18% on next (₦11,032,000 − ₦3,000,000) = 18% × ₦8,032,000 = ₦1,445,760
  Total PAYE = ₦330,000 + ₦1,445,760 = ₦1,775,760 per year:  monthly PAYE = ₦147,980 (₦1,775,760 ÷ 12)

 

Monthly breakdown (Case A):

• Monthly gross = ₦1,000,000
• Monthly pension (employee) = ₦64,000
• Monthly PAYE = ₦147,980
• Net monthly pay (after employee pension and PAYE) = ₦1,000,000 − ₦64,000 − ₦147,980 = ₦788,020

 

Case B (Chargeable = ₦10,732,000)

Tax due:

• 0% on first ₦800,000 = ₦0
• 15% on next ₦2,200,000 = ₦330,000
• 18% on next (₦10,732,000 − ₦3,000,000) = 18% × ₦7,732,000 = ₦1,391,760
  Total PAYE = ₦330,000 + ₦1,391,760 = ₦1,721,760 per year
  → monthly PAYE = ₦143,480

 

Monthly breakdown (Case B):

• Monthly gross = ₦1,000,000
• Monthly pension (employee) = ₦64,000
• Monthly PAYE = ₦143,480
• Net monthly pay = ₦1,000,000 − ₦64,000 − ₦143,480 = ₦792,520

 

6) Summary (side-by-side)

• Gross annual salary: ₦12,000,000 (₦1,000,000/month)
• Employee pension (8% of Basic+Housing+Transport): ₦768,000 p.a. (₦64,000/month).

 

Item	Case A (rent ₦1,000,000)	Case B (rent ₦3,000,000)
Rent relief (allowed)	₦200,000	₦500,000 (cap)
Chargeable income	₦11,032,000	₦10,732,000
Annual PAYE	₦1,775,760	₦1,721,760
Monthly PAYE	₦147,980	₦143,480
Monthly net pay (after pension & PAYE)	₦788,020	₦792,520

 

Notes, caveats & extra items to consider

1. Other allowable deductions (e.g., NHIS contributions, NHF, life insurance premiums, documented interest on housing loans, approved donations) may further reduce chargeable income if they apply and are supported by documentation. The NTA requires documentary proof for certain claims.
2. The employer may also remit employer pension (10% of pensionable emoluments) — that is not deductible from employee pay but is part of employer cost. I mentioned it for completeness.
3. CRA removed / replaced: NTA abolished the old Consolidated Relief Allowance (CRA) and replaced it with the rent relief above — this often increases tax liability for non-renters or those with low rent.
4. The NTA has a 0% tax allowance for the first ₦800,000 annual income (i.e., low-income relief). I used the new band structure for all computations.

 

This worked example clearly demonstrates how the new system affects take-home pay compared to the old CRA regime.

 

Key Changes at a Glance

Feature	Old System (Pre-2025)	New NTA 2025 System
Relief Type	Consolidated Relief Allowance (CRA)	Rent Relief
CRA Formula	20% of gross + ₦200,000	Abolished
Rent Relief	Not specified	20% of rent or ₦500k (lower)
First ₦800,000	Not exempt	Still exempt
Top Tax Rate	24%	25%

 

Why the New PAYE Computation Matters

1. Increased Transparency – Employees can easily verify how their taxes are calculated.
2. Encouragement for Proper Documentation – Rent relief motivates taxpayers to keep tenancy agreements and receipts.
3. Simplified Payroll Compliance – Employers can adopt a uniform calculation system without ambiguity.
4. More Realistic Tax Liability – Higher earners contribute more, while lower-income earners enjoy meaningful relief.

 

Key Takeaways

• Under the NTA 2025, PAYE is now based on progressive tax bands ranging from 0% to 25%.
• The CRA has been abolished and replaced with a Rent Relief capped at ₦500,000.
• Pension contributions (8% employee) are deductible from taxable income, but only on Basic, Housing, and Transport.
• Proper record-keeping is essential for taxpayers to benefit from reliefs.
• Employers must adjust payroll systems to comply from 2026 onwards.
• Once you are up to date in your tax obligations, you can apply for your tax clearance certificate.

 

Conclusion

The New PAYE Computation under NTA 2025 represents a major step toward a more transparent and fair taxation framework in Nigeria.
While employees will notice some changes in their monthly take-home pay, the overall system is simpler and more targeted at genuine expenses — such as rent and pension.

By understanding these updates and calculating PAYE correctly, both employers and employees can remain compliant and avoid future tax disputes.

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