Your payslip provides a detailed breakdown of your earnings and deductions. In Kenya, the PAYE system dictates how much income tax is withheld from your salary by your employer. Here's a breakdown of how PAYE is calculated, using a sample basic pay of Ksh 250,000:
Step 1: Determining Taxable Income
Basic Pay: Ksh 250,000.00 (This is your gross salary before any deductions)
Step 2: Mandatory Deductions before Tax
NSSF: Ksh 2,160.00 (This is your contribution to the National Social Security Fund, a mandatory social security scheme)
Step 3: Calculating Taxable Pay
Taxable Pay: Ksh 247,840.00 (Basic Pay - NSSF = Taxable Income)
Step 4: Determining Income Tax
Income Tax: Ksh 69,136.00 (This is calculated based on the prevailing tax bands in Kenya. You can find tax calculators online or consult your employer's payroll department for details)
Step 5: Applying Tax Reliefs
Personal Relief: Ksh -2,400.00 (This is a standard deduction applied to all taxpayers in Kenya)
Step 6: Calculating PAYE
PAYE: Ksh 66,736.00 (Income Tax - Personal Relief)
[Optional Step: Rounding for Administrative Convenience]
PAYE (Rounded): Ksh 65,918.50 (This is a common practice for administrative ease)
Step 7: Arriving at Net Pay
Pay After Tax: Ksh 181,921.50 (Basic Pay - PAYE)
Step 8: Additional Deductions
NHIF: Ksh 1,700.00 (This is your contribution to the National Hospital Insurance Fund, a health insurance scheme)
Step 9: Applying Insurance Relief
Insurance Relief: Ksh -255.00 (This is a tax credit based on 15% of your NHIF contribution)
Step 10: Affordable Housing Levy
Housing Levy: Ksh 3,750.00 (This is a new levy introduced in 2023, calculated as 1.5% of your gross salary)
Step 11: Applying Affordable Housing Levy Relief
AHL Relief: Ksh -562.50 (This is a tax credit based on 15% of your Housing Levy contribution)
Step 12: Reaching Your Net Pay
Net Pay: Ksh 176,471.50 (Pay After Tax - NHIF + Insurance Relief - Housing Levy + AHL Relief)
Understanding Your Take-Home Pay:
This example illustrates how various deductions and tax reliefs are applied to arrive at your net or take-home pay. It's important to understand these calculations to ensure your payslip is accurate and reflects the correct deductions.
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