What is Installment Tax?
Installment tax is estimated income tax paid to KRA periodically, in anticipation of the tax payable for a year of income. Installment tax is a form of advance tax administered under the Income Tax Act Cap 470, laws of Kenya. Installment Tax is paid in advance at four equal installments. It is paid before the year of income is over and before the accounts of the business are prepared to establish the actual tax payable.
- It is payable by every person subject to tax (individuals and non-individual)
- Installment taxes are not payable by persons who are subject to Turnover Tax (TOT)
- Installment taxes are paid by individual taxpayers who have a tax liability, that is not fully covered under PAYE, of over Kshs. 40,000 payable for any year.
- Projection is normally done at the beginning of the financial year. While projecting the annual tax liability, the expected withholding tax for the year is netted off in arriving at the net estimated tax liability to use in determining installment taxes payable.
How does one calculate installment tax?
This may be done in either of the two ways:
Prior year basis – Prior year tax payments are multiplied by one hundred and ten per cent.
Current Year basis - In this method, especially for new business or those who were in losses and turned to profitability, installment tax is determined by estimating the current year profit and tax payable thereon.
The installments are spread evenly at 25% of the tax due and payable on the 20th day of the 4th, 6th, 9th and 12th months of the year of income for all taxpayers expect those in the Agricultural Sector.
Taxpayers in the Agricultural Sector pay in installments of 75% in the 9th month and 25% in the 12th month.
NB: Balance of Tax (return balance) is to be paid by end of the 4th month after the year-end. i.e. by 30th April 2020 for December year-end cases.
How does one pay installment tax?
Instalment tax is paid via iTax.
Generate a payment slip and present it together with the cheque drawn in favor of Kenya Revenue Authority, at any of the partner banks.
What is the Penalty for late filing and payment?
- Penalty for the late payment of Income Tax shall apply.
- The penalty of underpaying Installment tax is 20% of the difference between the amount of installment tax payable in respect of a year of income and the instalment tax actually paid
How does one claim installment tax already paid in the year of income?
You can claim it as an advance payment made in the given year of income.