File & Pay
What is PAYE?
PAYE is a method of collecting tax from individuals,both Resident and Non-resident, in gainful employment.
Gains or Profits includes wages, casual wages, salary, leave pay, sick pay, payment in lieu of leave, fees, commission, bonus, gratuity, or subsistence, travelling, entertainment or other allowance received in respect of employment or services rendered.
If you are an employer you are required to register for this obligation.
As an employer you are required to deduct PAYE from your employees' salaries and wages at the prevailing rates and remit the same to KRA on or before the 9th of the following month.
PAYE is chargeable to persons of employment income of Kshs. 24,000 and above per month.
What incomes are chargeable to PAYE?
- Fringe Benefit Tax (FBT)
- Non-Cash Benefit above 3,000 pm e.g. airtime
- Car Benefit
- Value of Premises provide by Employer
What incomes are not chargeable to PAYE?
- Employment income less than Kshs. 24,000 per month.
- Meals provided by employer whose total value does not exceed Kshs. 4,000 per month (48,000 in a year).
- Earnings not exceeding Kshs. 150,000 per month for a person with disability having a valid tax exemption certificate.
- Benefit in kind whose value does not exceed kshs. 3,000 in a month (36,000 in a year)
- Medical cover provided to all employees.
- Upon retirement kshs. 60,000 per pensionable year worked to a maximum of kshs. 600,000. (lumpsum) received from a registered pension or individual retirement fund
- Pension income less than Kshs. 25,000 per month (300,000 per annum) (annuities) received by a resident individual from a registered pension fund or the National Social Security Fund.
- Monthly pension Income of persons aged 65 years and above.
- Subsistence, Night-out of Kshs. 2,000 per day
- Pension Contribution made by employer
How is PAYE Calculated?
PAYE is computed as shown below:
Individual Tax Bands and Rates
The following tax rates shall apply to individual employment income with effect from 1st January 2021. The first return under the new rate shall be due by the 9th Feb 2021.
| Tax Band | Rate of Tax |
| On the first Kshs 24,000 per month or Kshs 288,000 per annum | 10% |
| On the next Kshs 8,333 per month or Kshs 100,000 per annum | 25% |
| On all income amount in excess of Kshs 32,333 per month or Kshs 388,000 per annum | 30% |
| Personal Relief | |
| The applicable monthly personal relief is Kshs 2,400 per month or Kshs 28,800 annually | |
On pensions the new tax rates are:
| Pension Tax Bands | Annual Tax Rates |
| Any amount in excess of tax free amounts: | |
| On first 400,000 | 10% |
| On next 400,000 | 15% |
| On next 400,000 | 20% |
| On next 400,000 | 25% |
| On any amount in excess of Kshs 1,600,000 | 30% |
For example:
|
Rates Effective - 01.01.2021 |
|
|
Gross Income from Employment |
115,000 |
|
Less allowable Deductions |
|
|
Mortgage Interest |
15000 |
|
Pension Contribution by Employee |
5,000 |
|
Taxable Pay |
95,000 |
|
First |
24,000*10% =2,400 |
|
Next |
8,333*25% =2,083.25 |
|
Next
|
|
|
Above |
(95,000-32333) 62,667*30%=18800 |
|
Total tax = 2400+2083.25+18800 = 23283,25 |
|
|
Less |
|
|
Monthly Personal Relief |
2400 |
|
Insurance Relief |
0 |
|
Tax Paid |
20,883.25 |
You can also use the PAYE Calculator to determine Tax Payable.
How do I file for PAYE?
PAYE returns are submitted online via iTax
If you have no PAYE to declare, you are required to submit a NIL return.
How do I pay for PAYE?
After filing the return online, you are required to generate a payment slip via iTax which you will present at any of the KRA appointed banks to pay the tax due.
You can make payments via Mpesa.
Use the KRA Pay bill number 572572.
The Account Number is the Payment Registration number quoted at the top right corner of the generated payment slip.
What is the penalty for late filing and paying?
Date: Return should be filed and tax payable on or before the 9th of the following month.
Penalty on late filing: Whichever is higher between, 25% of the tax due or Kshs. 10,000.
Penalty on late payment: 5% of the tax due and a late payment of 1% per month on the unpaid tax until the tax is paid in full.
Emerging Issues
- House Ownership Savings Plan is no longer an allowable deduction
- Change of Personal relief and PAYE bands
- Bonuses and Overtime paid to low income earners are now chargeable to tax
- Distinction between an employee and consultant
- Non inclusion of taxable benefits
Filing PAYE
Is your income solely from employment?
Watch our tutorial on how to file Income Tax Returns from employment income only.
