The Nigeria Tax Act 2025 (NTA) replaced the Personal Income Tax Act (PITA) effective January 1st, 2026. The biggest change? Simpler tax computation with new bands and higher thresholds. Your employees now pay zero tax on their first ₦800,000 of annual income.
Quick answer: NTA 2025 introduced 6 new tax bands (0%, 15%, 18%, 21%, 23%, 25%), eliminated the complex Consolidated Relief Allowance, and added a rent relief of 20% of annual rent paid (max ₦500,000).
What You’ll Need
- Employee salary details
- Employee rent receipts (for rent relief claims)
- Pension and NHF contribution records
- PAYE remittance schedule
Estimated cost: ₦0 to understand the changes
Timeline: 15 minutes to grasp the new system
The Big Changes From PITA to NTA 2025
1. New Tax Bands (Effective January 1, 2026)
The old PITA system is dead. Here are your new tax rates:
| Annual Income Range | Tax Rate | Maximum Tax on Band |
|---|---|---|
| First ₦800,000 | 0% | ₦0 |
| Next ₦2,200,000 (₦800K – ₦3M) | 15% | ₦330,000 |
| Next ₦9,000,000 (₦3M – ₦12M) | 18% | ₦1,620,000 |
| Next ₦13,000,000 (₦12M – ₦25M) | 21% | ₦2,730,000 |
| Next ₦25,000,000 (₦25M – ₦50M) | 23% | ₦5,750,000 |
| Above ₦50,000,000 | 25% | No limit |
2. Goodbye Consolidated Relief Allowance (CRA)
The confusing CRA formula is gone. You know, that “₦200,000 or 1% of gross income, whichever is higher, plus 20% of gross income” formula.
Old system: Calculate CRA, then apply 7.5%, 11%, 15%, 19%, 21%, 24% bands
New system: Straight to the bands above. The ₦800,000 tax-free threshold replaces CRA entirely.
3. New Rent Relief
Employees who pay rent can now claim 20% of their annual rent as a deduction, capped at ₦500,000 per year.
Required documents:
- Tenancy agreement
- Rent receipts
- Bank transfer evidence
Pro tip: In net-first payroll setups, rent relief reduces the employer’s gross salary cost, not the employee’s take-home.
4. Gratuity Now Taxable
Under PITA, gratuity was tax-free. NTA 2025 changed this — gratuity is now part of taxable income. Plan accordingly for end-of-service payments.
Step-by-Step: Computing PAYE Under NTA 2025
Step 1: Calculate Pensionable Emoluments
Add Basic Salary + Housing Allowance + Transport Allowance.
Step 2: Deduct Pension & NHF
- Employee pension: 8% of pensionable emoluments
- NHF contribution: 2.5% of basic salary
Step 3: Apply Rent Relief (If Claimed)
Deduct 20% of annual rent paid (max ₦500,000).
Step 4: Apply Tax Bands
Use the graduated system above.
Worked Example: ₦350,000 Monthly Salary
Let’s compute PAYE for an employee earning ₦350,000 per month:
Salary breakdown:
- Basic: ₦200,000
- Housing: ₦100,000
- Transport: ₦50,000
- Total monthly: ₦350,000
- Annual gross: ₦4,200,000
Deductions:
- Pensionable emoluments: ₦350,000 (all allowances are pensionable)
- Employee pension (8%): ₦28,000 monthly = ₦336,000 annually
- NHF (2.5% of basic): ₦5,000 monthly = ₦60,000 annually
- Total deductions: ₦396,000
Chargeable income: ₦4,200,000 – ₦396,000 = ₦3,804,000
Tax computation:
- First ₦800,000: 0% = ₦0
- Next ₦2,200,000: 15% = ₦330,000
- Remaining ₦804,000: 18% = ₦144,720
- Total annual tax: ₦474,720
- Monthly PAYE: ₦39,560
Take-home: ₦350,000 – ₦28,000 – ₦5,000 – ₦39,560 = ₦277,440
Cost Breakdown: PAYE Compliance
| Requirement | Cost | Notes |
|---|---|---|
| PAYE computation software | ₦15,000-50,000/year | Or outsource to payroll provider |
| TIN registration | ₦0 | Free at FIRS office |
| Monthly PAYE remittance | ₦100-500/transaction | Bank charges |
| Annual returns filing | ₦5,000-15,000 | If using tax consultant |
| Total annual cost | ₦20,000-65,000 | For 5-10 employee company |
Or skip the queue — Lint Smart Payroll handles NTA 2025 PAYE computation, remittance, and filing for ₦500 per employee per payroll run.
Common Mistakes Under NTA 2025
1. Using old PITA rates: The 7.5%, 11%, 15% bands are history. Update your payroll system immediately.
2. Forgetting the ₦800K threshold: Many payroll systems still deduct tax from the first Naira. The first ₦800,000 is tax-free.
3. Misapplying rent relief: It’s 20% of annual rent paid, not monthly rent. And it’s capped at ₦500,000.
4. Taxing gratuity as before: Gratuity is now taxable income under NTA 2025. Factor this into severance calculations.
5. Late remittance penalties: PAYE must reach FIRS by the 10th of the following month. Penalties start at ₦50,000 for late payment.
Key Deadlines for 2026
- PAYE remittance: 10th of following month
- Annual PAYE returns: March 31, 2027 (for 2026 tax year)
- Pension remittance: Within 7 working days of salary payment
- Withholding tax: 21st of following month
Frequently Asked Questions
Q: Does NTA 2025 apply to all states in Nigeria?
A: Yes, but state income tax rates may vary. Lagos and FCT follow federal rates. Check with your State Internal Revenue Service.
Q: What happens if I don’t update my payroll system?
A: You’ll overpay tax using old PITA rates, and FIRS won’t refund the difference automatically. Update immediately.
Q: Can employees claim rent relief retrospectively?
A: Yes, but only for rent paid in the current tax year. Keep all receipts and bank transfer records.
Q: Are there exemptions for small businesses?
A: No blanket exemptions. However, companies with fewer than 3 employees may be exempt from pension contributions under certain conditions.
Q: How do I handle employees who joined mid-year?
A: Prorate their annual tax computation based on months worked. The ₦800,000 threshold applies pro-rata.
Related Tools
- PAYE Calculator for NTA 2025 — Compute tax for any salary
- Rent Relief Calculator — Maximize your employees’ deductions
The bottom line: NTA 2025 simplified Nigerian tax computation, but compliance is still your responsibility. Most small businesses will save money with the higher tax-free threshold, but you need accurate payroll systems.
Ready to automate PAYE under the new tax act? Lint Smart Payroll handles NTA 2025 computation, remittance, and compliance — so you can focus on growing your business, not wrestling with tax tables.
Sources: Nigeria Tax Act 2025, Pension Reform Act 2014, Federal Inland Revenue Service guidelines
Last updated: April 6, 2026
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