HomeBusinessHow much is PAYE deduction for Ksh.120,000

How much is PAYE deduction for Ksh.120,000

Have you ever stared at your payslip, wondering where a chunk of your hard-earned money goes? In Kenya, like many countries, the government collects income tax through a system called PAYE. This means your employer deducts a portion of your salary before you even see it. Let’s embark on a journey to understand how PAYE works and where your deductions go, using James Gichanga, a Kenyan pilot, as an example. Here’s a table breakdown of James’ payslip with a basic pay of Ksh. 120000.

DeductionAmount (KES)Description
Basic Salary120,000James’s gross monthly pay
NSSF Contribution2,160This goes towards James’s retirement savings
Taxable Pay117,840 (Basic Salary – NSSF)The amount used to calculate income tax
Income Tax30,135.36The tax owed based on James’s taxable income
Insurance Relief-255Reduces taxable income for private medical insurance (if applicable)
AHL Relief-270Lowers taxable income for contributions to an Approved Housing Scheme (if applicable)
Personal Relief-2,400Standard deduction provided to all taxpayers
PAYE (Pay As You Earn)27,210.36 (Income Tax – Reliefs)The actual income tax James pays monthly
PAY After Tax90,629.64 (Basic Salary – NSSF – PAYE)The amount James receives after income tax deductions
NHIF Contribution1,700This contributes to James’s medical insurance
Housing Levy1,800This goes towards a national housing fund
Net Pay87,129.64 (PAY After Tax – NHIF – Housing Levy)The final amount James takes home each month

Step 1: The Starting Point – Gross Pay

James’s adventure begins with his gross pay of KES 120,000. This represents his total earnings before any deductions.

Step 2: Mandatory Deductions – Shaping the Taxable Pay

Before calculating income tax, some mandatory deductions are made:

  • NSSF Contribution (KES 2,160): This contributes to James’s retirement savings, ensuring a secure future after he hangs up his pilot’s cap.

Step 3: Calculating Taxable Pay – The Tax Base

James’s taxable pay is KES 117,840 (Basic Salary – NSSF Contribution). This is the amount used to determine his income tax liability.

Step 4: Facing the Taxman – Income Tax Calculation

Based on his taxable income, James owes KES 30,135.36 in income tax. However, there’s a ray of sunshine!

Step 5: Reliefs to the Rescue – Reducing Tax Burden

The government offers reliefs to ease the tax burden on its citizens. These reliefs can include:

  • Insurance Relief (KES -255): If James has private medical insurance, this amount reduces his taxable income, lowering his tax liability.
  • AHL Relief (KES -270): Contributing to an Approved Housing Scheme can also decrease James’s taxable income and ultimately, his tax amount.
  • Personal Relief (KES -2,400): This is a standard deduction provided to all taxpayers.

Step 6: PAYE Defined – The Actual Tax Deducted

By applying these reliefs (Insurance Relief + AHL Relief + Personal Relief) to his income tax, James’s actual monthly PAYE amount comes down to KES 27,210.36.

Step 7: Approaching the Finish Line – PAY After Tax

Now, let’s calculate James’s pay after income tax deductions (PAY After Tax). This is KES 90,629.64 (Basic Salary – NSSF Contribution – PAYE). This represents the amount he receives after the initial tax bite.

Step 8: Final Deductions – Reaching the Net Pay

But wait, there’s more! Before James pockets his paycheck, there are two final deductions:

  • NHIF Contribution (KES 1,700): This contributes to James’s medical insurance, ensuring access to healthcare.
  • Housing Levy (KES 1,800): This goes towards a national housing fund, contributing to the development of the housing sector.

Step 9: The Final Destination – Net Pay

Finally, James arrives at his net pay of KES 87,129.64 (PAY After Tax – NHIF Contribution – Housing Levy). This is the amount he takes home each month.

Nssf Rates Kenya 2024

PAYE Calculator for 2025

Kenya PAYE Brackets 2024

Safe Period Calculator