Understanding Personal Income Tax Under The Nigerian Tax Act 2025

1. Introduction

The Nigeria Tax Act, 2025 ("the Act") 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's tax system. It repeals several existing tax laws, including the Personal Income Tax Act, and consolidates all major tax provisions into a single, comprehensive statute.

In this article, we focus on the personal income tax aspects of the Act. Specifically, we examine the new tax rates, the allowable deductions, and how taxable income 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.

2. Scope of Application

The law applies to individuals whose income is considered to arise in Nigeria, whether or not that income is actually received or brought into the country.¹ 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.

2.1 Who is considered a resident individual?

An individual is regarded as a resident for tax purposes in a particular year if any of the following apply:²

• Domicile: The person's 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.
• Permanent home in Nigeria: The person has a permanent place available for personal or family use in Nigeria, such as a house or apartment whether owned or rented.
• Habitual abode: The person regularly lives in Nigeria or spends most of their time here.
• Economic and family ties: The person has strong business or financial interests in Nigeria, or their immediate family (spouse, children, dependents) live in Nigeria.
• Physical presence: The person spends a total of 183 days or more in Nigeria during any 12-month period. These days don't have to be consecutive they can add up over multiple visits.
• Diplomatic service: Nigerian diplomats or diplomatic agents serving abroad are still treated as residents for tax purposes.

A resident individual, therefore, is someone whose life, work, or family is substantially tied to Nigeria.

• What about non-residents?

People who are not resident in Nigeria are only taxed on income that is earned in or derived from Nigeria.³
For 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.

3. TAXABLE INCOME

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.

3.1 Employment income: 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.⁴

3.2 Business and professional income: includes profits or gains derived from any trade, business, profession, or vocation.⁵

3.3 Investment income 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.⁶

3.4 Capital gains: these are gains accruing to any person in a year of assessment, which are chargeable to tax from the disposal of certain assets.⁷ 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.

3.5 Pension income is also taxable and it includes any pension, annuity, or similar periodic payment received by an individual.⁸

3.6 Other taxable income sources: 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.⁹

4. Exempted income

Section 163 lists the types of income that are exempt from tax under Chapter Two of the Act. Key exemptions for individuals include:

4.1 Income from Exempt Organizations
Profits or gains from educational, religious, or charitable activities of a public nature, provided the income is not from a trade or business.

4.2 Certain Investment Income
Dividends 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.

4.3 Pensions and Retirement Benefits
Income 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.

4.4 Compensation
Death gratuities or compensation for injury, and redundancy or severance payments that are capital in nature.

4.5 Minimum Wage Earners
Income from employment is exempt where the person earns the national minimum wage or less.

4.6 Military Wages and Salaries
Wages and salaries paid to members of the armed forces are exempt.

4.7 Agricultural Income
Income from agricultural businesses is exempt for the first five years after the business begins.

4.8. Export Profits
Profits from goods or services exported from Nigeria are exempt if the proceeds are brought back through official channels (excluding petroleum operations).

5. Exempted gains

Section 163(2) also identifies certain gains that are not taxable:

5.1 Principal Private Residence
Gains from selling one's main home and the land around it (up to one acre) are exempt, once in a lifetime.

5.2 Personal Chattels
Gains from selling personal belongings worth ₦5,000,000 or less, or up to three times the national minimum wage, are exempt.

5.3 Motor Vehicles
Up to two private or non-commercial vehicles per year are exempt from capital gains tax.

5.4 Gifts
Gains from giving or receiving assets as gifts (other than through inheritance) are exempt.

5.5 Personal Injury Compensation
Compensation up to ₦50,000,000 for personal injury, professional loss, or loss of employment is exempt. Only the excess above ₦50,000,000 is taxable.

5.6 Pension Fund Disposals
Gains from investments made by approved pension or retirement funds are exempt.

5.7 Military Decorations
Gains from selling medals or decorations awarded for bravery or service are exempt if they were not bought for money.

6. ELIGIBLE DEDUCTIONS

Section 30(2)(a) defines eligible deductions as payments made by an individual in a year of assessment in respect of the following:

6.1 National Housing Fund Contributions
Contributions made under the National Housing Fund are deductible.

6.2. National Health Insurance Scheme Contributions
Contributions made under the National Health Insurance Scheme are deductible.

6.3 Pension Contributions
Contributions made under the Pension Reform Act are deductible.

6.4 Interest on Housing Loans
Interest paid on loans taken for developing an owner-occupied residential house is deductible.

6.5 Life Insurance and Annuity Premiums
Any annuity or premium paid in the year preceding the year of assessment for insurance on the individual's life or that of their spouse, or for a deferred annuity contract, is deductible.

6.6 Rent Relief
Twenty percent (20%) of annual rent paid, up to a maximum of ₦500,000 (whichever is lower), is deductible, provided the actual amount of rent paid is accurately declared: An individual paying ₦3,000,000 annual rent is entitled to a 20% deduction (₦600,000), but since the amount exceeds the ₦500,000 cap, the deductible amount is ₦500,000.

7. PERSONAL INCOME TAX RATES AND BAND

The Fourth Schedule of the Personal Income Tax Act sets out how personal income tax is calculated in Nigeria.¹⁰ The tax is imposed on chargeable income, which is the portion of a person's income that remains after all applicable relief allowances and exemptions have been deducted under Section 30(1) of the Act.

The Fourth Schedule establishes six progressive tax bands, 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:

Band 1: First ₦800,000 at 0%

The first ₦800,000 of annual income is completely tax-free.
For example, if an individual earns ₦700,000 in a year, they will pay no tax at all since the entire income falls below the ₦800,000 threshold.

Band 2: Next ₦2,200,000 at 15%

Income that exceeds ₦800,000 but does not go beyond ₦3,000,000 is taxed at 15%.
For instance, if an individual earns ₦1,200,000 in a year, the first ₦800,000 is tax-free, while the remaining ₦400,000 is taxed at 15%. This gives a total tax of ₦60,000.
If the individual earns ₦3,000,000, the first ₦800,000 remains tax-free, and the next ₦2,200,000 is taxed at 15%, resulting in ₦330,000 in tax.

Band 3: Next ₦9,000,000 at 18%

Income above ₦3,000,000 and up to ₦12,000,000 is taxed at 18%.
For example, if someone earns ₦6,000,000 in a year, the first ₦800,000 is tax-free, the next ₦2,200,000 is taxed at 15% (₦330,000), and the remaining ₦3,000,000 is taxed at 18% (₦540,000). This brings the total tax payable to ₦870,000.

Band 4: Next ₦13,000,000 at 21%

Income above ₦12,000,000 and up to ₦25,000,000 is taxed at 21%.
For instance, if an individual earns ₦15,000,000 annually, the first ₦800,000 is tax-free, the next ₦2,200,000 is taxed at 15% (₦330,000), the following ₦9,000,000 is taxed at 18% (₦1,620,000), and the remaining ₦3,000,000 is taxed at 21% (₦630,000). Altogether, the person will pay ₦2,580,000 in tax.

Band 5: Next ₦25,000,000 at 23%

Income that exceeds ₦25,000,000 but does not go beyond ₦50,000,000 is taxed at 23%.
For example, if an individual earns ₦40,000,000 annually, the first ₦800,000 is tax-free, the next ₦2,200,000 is taxed at 15% (₦330,000), the following ₦9,000,000 is taxed at 18% (₦1,620,000), the next ₦13,000,000 is taxed at 21% (₦2,730,000), and the remaining ₦15,000,000 is taxed at 23% (₦3,450,000). The total tax payable in this case amounts to ₦8,130,000.

Band 6: Above ₦50,000,000 at 25%

Any income exceeding ₦50,000,000 is taxed at 25%.
For example, if an individual earns ₦60,000,000 in a year, the first ₦800,000 is tax-free, the next ₦2,200,000 is taxed at 15% (₦330,000), the following ₦9,000,000 is taxed at 18% (₦1,620,000), the next ₦13,000,000 is taxed at 21% (₦2,730,000), and the next ₦25,000,000 is taxed at 23% (₦5,750,000). The remaining ₦10,000,000 (which exceeds ₦50,000,000) is taxed at 25%, giving ₦2,500,000. In total, the tax payable on ₦60,000,000 amounts to ₦12,930,000.

8. Computation of Chargeable Income

Total income as an individual's taxable income minus total deductions.¹¹

Taxable income includes:

• Profits from trade, business, or profession;
• Employment income;
• Investment income;
• Income from any other source; and
• Chargeable gains from asset disposals.

Total deductions include:

• Losses;
• Capital allowances;
• Tax-exempt income; and
• Income already taxed at source as final tax.

Thus, chargeable income is what remains after deducting all eligible deductions from total income.

9. Conclusion

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.

Footnotes

1 The Nigeria Tax Act 2025, section 12.

2 The Nigeria Tax Act 2025, section 202.

3 The Nigeria Tax Act 2025, section 17 (1).

4 The Nigeria Tax Act 2025, section 13 (1).

5 The Nigeria Tax Act 2025, section 4 (1) (a).

6 The Nigeria Tax Act 2025, section 4 (1) (b), (c), (q).

7 The Nigeria Tax Act 2025, section 33.

8 The Nigeria Tax Act 2025, section 4 (2) (b).

9 The Nigeria Tax Act 2025, section 4 (1).

10 The Nigeria Tax Act 2025, section 58.

11 The Nigeria Tax Act 2025, section 28.

12 The Nigeria Tax Act 2025, section 30.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.