In Kenya, the PAYE system collects income tax from salaried individuals. By calculating PAYE for Ksh 550,000, we can use Esther Nekesa’s salary to understand how PAYE is calculated. Esther’s monthly basic salary is Ksh 550,000. Below is a detailed breakdown of her pay and the deductions involved.
Esther Nekesa’s Pay Breakdown
| Description | Amount (Ksh) |
|---|---|
| Basic Pay | 550,000.00 |
| NSSF | 2,160.00 |
| Taxable Pay | 547,840.00 |
| Income Tax | 160,331.36 |
| Insurance Relief | -255.00 |
| AHL Relief | -1,237.50 |
| Personal Relief | -2,400.00 |
| PAYE | 156,438.86 |
| Pay After Tax | 391,401.14 |
| NHIF | 1,700.00 |
| Housing Levy | 8,250.00 |
| Net Pay | 381,451.14 |
Basic Pay
To begin with, Esther’s starting point for salary calculations is her basic pay of Ksh 550,000.00.
NSSF Deduction
Next, contributions to the NSSF are mandatory and are deducted from the basic pay. For Esther, this deduction is Ksh 2,160.00.
Taxable Pay
After deducting NSSF contributions from the basic pay, we get the taxable pay. For Esther, the taxable pay is Ksh 547,840.00.
Income Tax Calculation
The taxable pay is then subjected to income tax based on the prevailing tax bands and rates in Kenya. Consequently, Esther’s income tax amounts to Ksh 160,331.36.
Reliefs
Insurance Relief
Tax relief for insurance premiums paid is provided to encourage individuals to insure their lives. In Esther’s case, her insurance relief is Ksh 255.00.
AHL Relief
Furthermore, this form of tax relief encourages home ownership. Esther’s AHL relief amounts to Ksh 1,237.50.
Personal Relief
Additionally, this standard relief is provided to all individual taxpayers in Kenya. For Esther, this relief is Ksh 2,400.00.
PAYE Calculation
To calculate PAYE, we subtract the various reliefs from the income tax. Thus, for Esther, the PAYE is Ksh 156,438.86.
Pay After Tax
This is the amount left after deducting PAYE from the taxable pay. Therefore, for Esther, the pay after tax is Ksh 391,401.14.
NHIF Deduction
Moreover, contributions to the NHIF are mandatory and provide health insurance coverage. For Esther, this deduction is Ksh 1,700.00.
Housing Levy
Additionally, this levy finances affordable housing initiatives. For Esther, this deduction is Ksh 8,250.00.
Net Pay
Finally, the net pay is calculated by subtracting NHIF and Housing Levy from the pay after tax. For Esther, the net pay is Ksh 381,451.14.
Conclusion
By following the detailed steps outlined above, you can calculate Esther Nekesa’s net pay from her basic salary of Ksh 550,000. Understanding these deductions is crucial for financial planning and ensuring compliance with tax regulations in Kenya.