Contributor: Janeth Udoka
Introduction
The Nigeria Tax Act 2025, which came into effect on 1 January 2026, significantly reforms Nigeria’s fiscal framework by repealing and consolidating several existing tax laws, including the Personal Income Tax Act. This article examines the personal income tax regime established under the Act, with particular emphasis on the revised tax bands, allowable deductions, and the process for calculating taxable income. It also considers the implications of these reforms for individual taxpayers in Nigeria.[1]
Scope of Application
The Nigeria Tax Act 2025 applies to all individuals whose income is deemed to be derived from Nigeria, irrespective of whether such income is received or remitted into the country.[2] In essence, any income sufficiently connected to Nigeria may be subject to tax under the Act, even where payment is made outside Nigeria.[3]
Chargeable Income under the Nigeria Tax Act
Under the Act, chargeable income refers to the total income of an individual after deducting all eligible deductions.[4]
Formula:
Chargeable Income = Total Income − Eligible Deductions
Where:
Total Income: includes employment income, business income, investment income, and chargeable gains.
Eligible Deductions: as provided under section 30(2)(a) of the Act, include the following:
National Housing Fund Contributions: Contributions made pursuant to the National Housing Fund shall be treated as allowable deductions in accordance with applicable law.
National Health Insurance Scheme Contributions: Contributions made under the National Health Insurance Scheme are deductible.
Pension Contributions: Contributions made under the Pension Reform Act are deductible.
Interest on Housing Loans: Interest paid on loans taken for developing an owner-occupied residential house is deductible.
Life Insurance and Annuity Premiums: Any annuity or premium paid in the year preceding the year of assessment for insurance on the life of the individual or the individual’s spouse, or for a deferred annuity contract, is deductible.
TAXABLE INCOME
Section 4 of the Act defines the income, profits, and gains that are chargeable to tax. For individuals, taxable income includes the following categories:[5]
i. Employment Income: This includes all forms of compensation or rewards arising from employment, such as salaries, wages, fees, allowances, compensation, bonuses, premiums, benefits, and other perquisites provided by an employer to an employee[6].
ii. Business and Professional Income: This comprises profits or gains derived from any trade, business, profession, or vocation.[7]
iii. Investment Income: Investment income is taxable under the Act and includes dividends, premiums, charges, annuities, royalties, fees, rents, and interest arising from the use, exploitation, or occupation of property. It also includes income, profits, or gains derived from the disposal or lending of securities.[8]
iv. Capital Gains: These are gains accruing to a person in a year of assessment from the disposal of chargeable assets.[9] Section 34 defines chargeable assets broadly to include all forms of property, such as shares, options, rights, debts, digital or virtual assets, and incorporeal property. The provision therefore covers both tangible and intangible assets.
v. Pension Income: This includes any pension, annuity, or similar periodic payment received by an individual.[10]
vi. Other Taxable Income: Other taxable income includes fees, dues, allowances, remuneration for services, discounts, rebates, proceeds from the disposal of money or financial instruments, prizes, winnings, honoraria, grants, awards, and profits derived from the disposal of property, fixed assets, or transactions involving digital assets.[11]
Exempted Income
Section 163 of the Act sets out the categories of income exempt from tax under Chapter Two. Key exemptions applicable to individuals include the following:[12]
i. Income from Exempt Organisations: Profits or gains derived from educational, religious, or charitable activities of a public nature are exempt from tax, provided such income does not arise from a trade or business.
ii. Certain Investment Income: Exempt income includes dividends derived from approved collective investment schemes, dividends from wholly export-oriented businesses, and foreign-earned dividends, interest, rent, or royalties remitted into Nigeria through approved channels.
iii. Pensions and Retirement Benefits: Income derived from pension funds established under the Pension Reform Act is exempt from tax. Pensions and gratuities paid in accordance with the Act, as well as wound or disability pensions paid to members of the armed forces, are also exempt.
iv. Compensation Payments: Death gratuities, injury compensation, and redundancy or severance payments of a capital nature are exempt from tax.
v. Minimum Wage Earners: Employment income earned by an individual receiving the national minimum wage or less is exempt from tax.
vi. Military Wages and Salaries: Wages and salaries paid to members of the armed forces are exempt from tax.
vii. Agricultural Income: Income derived from agricultural businesses is exempt from tax for the first five years commencing from the date the business begins operations.
viii. Export Profits: Profits derived from the export of goods or services from Nigeria are exempt from tax, provided the export proceeds are repatriated through official channels. This exemption does not apply to petroleum operations.
Exempted Gains
Section 163(2) of the Act also identifies certain gains that are exempt from tax. These include the following:
i. Principal Private Residence: Gains derived from the disposal of an individual’s principal private residence, including the surrounding land not exceeding one acre, are exempt from tax. This exemption applies once in a lifetime.
ii. Personal Chattels: Gains arising from the disposal of personal belongings valued at ₦5,000,000 or less, or up to three times the national minimum wage, are exempt.
iii. Motor Vehicles: An individual may dispose of up to two private or non-commercial vehicles within a year without incurring capital gains tax.
iv. Gifts: Gains arising from the transfer of assets by way of gifts, other than through inheritance, are exempt from tax.
v. Compensation for Personal Injury: Compensation not exceeding ₦50,000,000 paid for personal injury, professional loss, or loss of employment is exempt from tax. Any amount above ₦50,000,000 is taxable.
vi. Pension Fund Disposals: Gains derived from investments made by approved pension or retirement funds are exempt from tax.
vii. Military Decorations: Gains arising from the disposal of medals or decorations awarded for bravery or service are exempt, provided such medals or decorations were not acquired for monetary consideration.
Tax-Free Threshold
The first ₦800,000 of an individual’s income, after allowable deductions, is exempt from personal income tax.
Tax Rates
The Fourth Schedule to the Act prescribes the applicable tax rates as follows:
i. ₦0 – ₦800,000: 0%
ii. ₦800,001 – ₦3,000,000: 15%
iii. ₦3,000,001 – ₦5,000,000: 18%
iv. ₦5,000,001 – ₦7,000,000: 20%
v. ₦7,000,001 – ₦20,000,000: 23%
vi. Above ₦20,000,000: 25%
Individuals earning only the national minimum wage, currently ₦70,000 per month as of 2025, are exempt from personal income tax.
Rent Relief
The Act also provides for rent relief, which is calculated as follows:
Rent Relief = Lower of:
- 20% of Annual Rent; or
- ₦500,000
Examples:
i. Where an individual pays annual rent of ₦1,500,000, 20% amounts to ₦300,000. Accordingly, the individual may claim ₦300,000 as rent relief.
ii. Where an individual pays annual rent of ₦3,000,000 or more, 20% amounts to at least ₦600,000. However, the claimable relief is capped at ₦500,000.
iii. An individual who owns and occupies their residence is not eligible to claim rent relief.
Penalties for false claims or fraudulent documentation
Making false claims or submitting fraudulent documentation under the Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025 attracts significant penalties. Such penalties may include the disallowance of deductions, additional assessments for unpaid tax, interest on outstanding tax liabilities, and penalties of up to 200% of the underpaid tax. In serious cases, offenders may also face criminal prosecution. Consequently, taxpayers must ensure that all claims, deductions, and supporting documentation are accurate, complete, and verifiable.[13]
Conclusion
The Nigeria Tax Act 2025 introduces a more structured and comprehensive personal income tax regime by clearly defining chargeable income, taxable sources, allowable deductions, and exemptions. The Act also establishes progressive tax bands, a tax-free threshold, and targeted reliefs, such as rent relief, to promote fairness in the tax system while strengthening revenue generation.
Notwithstanding these reforms, effective compliance, proper documentation, and robust enforcement remain essential to the successful implementation of the Act. Given the stringent penalties imposed for false claims and fraudulent documentation, taxpayers must fully understand the applicable deductions, exemptions, and reliefs to accurately assess their tax liabilities and minimise legal exposure.
Reference:
- Understanding Personal Income Tax Under the Nigerian Tax Act 2025; By Felicia Ayeomoni. Adeola Oyinlade & Co. available at https://www.adeolaoyinlade.com/en/understanding-personal-income-tax-under-the-nigerian-tax-act-2025/ accessed April 2026 ↑
- The Nigeria Tax Act 2025, section 12. ↑
- Ibid. ↑
- The Nigeria Tax Act 2025, Section 30(1) ↑
- Ibid. ↑
- The Nigeria Tax Act 2025, section 13 (1). ↑
- The Nigeria Tax Act 2025, section 4 (1) (a). ↑
- The Nigeria Tax Act 2025, section 4 (1) (b), (c), (q). ↑
- The Nigeria Tax Act 2025, section 33. ↑
- The Nigeria Tax Act 2025, section 4 (2) (b). ↑
- Ibid. ↑
- Ibid. ↑
- Ibid. ↑
