Your gross salary and your taxable income are not the same number. That difference is what this article is about.
Chargeable income is the figure that your PAYE tax is actually calculated on. It is your gross income after you have subtracted every deduction you are legally entitled to claim. The smaller your chargeable income, the less tax you pay.
Most salary earners in Nigeria do not know their chargeable income. They see a PAYE deduction on their payslip and accept it without checking whether it is right. This post walks you through calculating it yourself, step by step, so you can verify that your employer is doing it correctly and claim every deduction you qualify for.
Step 1: Start With Your Gross Income
Gross income is every naira your employer pays you, in cash or in kind.
Your gross income includes everything: basic salary, housing allowance, transport allowance, utility allowance, meal allowances, leave allowances, and any other regular payments from your employer. If it appears on your payslip as a payment to you, it is part of your gross income.
Benefits in kind also count. If your employer provides a car or accommodation for personal use, a monetary value is placed on that benefit and included in your taxable income. Under the NTA 2025, the rule is 5% of the original cost of the asset per year.
The table below shows what counts and what does not:
| Income / Payment Type | Taxable? | Notes |
|---|---|---|
| Basic salary | Yes | Always included in gross |
| Housing allowance (cash) | Yes | Included in gross |
| Transport allowance (cash) | Yes | Included in gross |
| Leave allowance | Partially | Up to 10% of annual basic salary is exempt; excess is taxable |
| Meal / utility allowances | Yes | Cash allowances are always included |
| Employer-provided car | Yes | Valued at 5% of cost of car per year (NTA 2025 rule) |
| Employer-provided accommodation | Yes | Valued at 5% of cost of property per year |
| Pension contribution (employer 10%) | No | Employer contributions to approved PFA are exempt |
| Business expense reimbursements | No | Must be genuine business expenses with receipts |
| Gratuity / terminal benefits | Yes | Now taxable under NTA 2025. Compensation for job loss exempt up to N50m |
Do not confuse gross salary with basic salary. Basic salary is usually one component of your total package. Gross salary is the full package value before any deductions. Always use gross for this calculation.
Step 2: Identify Your Pensionable Emoluments
Pension is calculated on a subset of your gross, not the full amount.
Under the NTA 2025 and the Pension Reform Act, your pension contribution is calculated on your pensionable emoluments only. Pensionable emoluments are defined as your basic salary plus housing allowance plus transport allowance.
Other allowances like utility, meal, and leave are not pensionable. This matters because your pension deduction forms the first and largest subtraction from your gross income.
Pension (Employee) = 8% x (Basic Salary + Housing Allowance + Transport Allowance)
Example: If your basic salary is N200,000, housing is N80,000, and transport is N40,000, your pensionable emoluments are N320,000. Your pension deduction is 8% of N320,000 = N25,600 per month, or N307,200 per year.
Some employers simplify this by applying pension to the full gross salary. This is technically incorrect under the strict NTA 2025 definition, but it results in a higher pension deduction and therefore a lower chargeable income, so in practice it reduces your tax slightly. If your employer does this, it works in your favour, but it is worth knowing the technical rule.
Step 3: Subtract All Approved Deductions
These are the items you can legally remove from your gross income before tax is calculated.
After pension, the remaining approved deductions under the NTA 2025 are:
National Housing Fund (NHF)
If you are enrolled in the NHF through your employer, you contribute 2.5% of your basic salary to the Federal Mortgage Bank of Nigeria. This contribution is tax-deductible. If you are not enrolled, you cannot claim it.
NHF = 2.5% x Basic Salary. Deductible only if you are registered with the NHF.
National Health Insurance Scheme (NHIS) / Health Insurance
Your actual health insurance premium paid to a registered health management organisation (HMO) or NHIS is deductible. There is no cap. Keep your premium receipt or your employer’s documentation as evidence.
Life Insurance Premiums
Premiums paid on qualifying life insurance policies are deductible. You need the policy document and premium receipts. Again, there is no cap on the amount.
Rent Relief
20% of your actual annual rent, capped at N500,000. You need a tenancy agreement and rent receipts. You must also make a written claim to your employer. We cover this in detail in the companion article: Nigeria’s New Rent Relief Deduction.
Voluntary Pension Contributions
Any pension contributions you make above the mandatory 8% are also deductible. If you are paying extra into your retirement savings account voluntarily, every naira of it reduces your chargeable income.
Step 4: The Formula
Chargeable Income = Gross Income – Pension (8% of pensionable emoluments) – NHF (if enrolled) – NHIS / Health Insurance – Life Insurance Premium – Rent Relief – Voluntary Pension Contributions
The order does not change the result. Subtract all approved deductions from your gross and whatever is left is your chargeable income. That is the figure you apply the tax bands to.
Step 5: Three Worked Examples
Let us apply the formula to three real salary profiles.
| Bisola (N120k/mo) | Chidi (N300k/mo) | Adamu (N600k/mo) | |
|---|---|---|---|
| Annual Gross Salary | N1,440,000 | N3,600,000 | N7,200,000 |
| Less: Pension (8% of gross) | (N115,200) | (N288,000) | (N576,000) |
| Less: NHF (Amaka & Ngozi enrolled) | (N36,000) | Not enrolled | (N90,000) |
| Less: Rent Relief | N0 (owns home) | (N168,000) | (N500,000) |
| Less: Life Insurance Premium | N0 | N0 | (N120,000) |
| = Chargeable Income | N1,288,800 | N3,144,000 | N5,914,000 |
| Annual PAYE | N73,320 | N352,920 | N703,320 |
| Monthly PAYE | N6,110 | N29,410 | N58,610 |
| Effective Rate | 5.1% | 9.8% | 9.8% |
A few things to observe across these three examples:
- Bisola owns her home so she cannot claim rent relief. But her NHF enrollment saves her N36,000 in deductions.
- Chidi is not enrolled in NHF and rents for N840,000 per year. His rent relief of N168,000 nearly offsets the NHF he is missing.
- Adamu claims all available deductions. He pays N1,800,000 in annual rent (relief capped at N500,000), has NHIS and life insurance, and is enrolled in NHF. Her chargeable income is N5,914,000 on a gross of N7,200,000, a reduction of N1,286,000 entirely through legitimate deductions.
Common Mistakes That Lead to Wrong Chargeable Income
- Applying pension to the full gross: Pension should be calculated on pensionable emoluments only (basic + housing + transport). Some payroll systems apply it to the full gross. This over-deducts pension, which actually lowers chargeable income further. While it is technically incorrect, it works in the employee’s favour.
- Missing rent relief because of lack of documentation: Rent relief does not apply automatically. You have to claim it in writing with supporting documents. Many employees qualify but never claim because they do not know they need to.
- Not including all income components in gross: If allowances are omitted from the gross income figure used for PAYE, the chargeable income is understated and the employer may be under-remitting tax. This creates a liability for the employer.
- Using gross instead of pensionable emoluments for NHF: NHF is 2.5% of basic salary only, not the full gross. Using the wrong base gives the wrong deduction.
How to Verify Your Payslip
Once you know how to calculate your chargeable income, you can verify whether your payslip is correct. Here is the check:
- Find your gross income on the payslip (all payments before deductions).
- Find the pension deduction. Confirm it is 8% of your basic, housing, and transport (not the full gross).
- Check that any other deductions (NHF, NHIS, rent relief) are applied if you have submitted claims for them.
- Subtract all deductions from gross to get your chargeable income.
- Apply the NTA 2025 bands to your chargeable income and calculate the annual tax.
- Divide by 12. Does this match the PAYE figure on your payslip?
If there is a gap, either your employer is over-deducting (calculate and confirm, then raise it with HR in writing) or they are under-deducting (in which case they will need to correct it).
The fastest way to do steps 4 to 6 is to use the NairaSeed Tax Calculator. Enter your gross and deductions and it does the band-by-band calculation for you.
Calculate your chargeable income and PAYE in one step. The NairaSeed Tax Calculator handles the full calculation for you. Enter your gross salary and each deduction you qualify for, and it computes your chargeable income, applies the NTA 2025 bands, and shows your annual and monthly PAYE.
>> Calculate your chargeable income here
Related reading on NairaSeed:
- 6 Legal Deductions That Can Reduce Your PAYE Tax in Nigeria Right Now
- Nigeria’s New Rent Relief Deduction: How to Claim Up to N500,000 Off Your Income Tax in 2026
- NHF, Pension, NHIS: Which Contributions Actually Reduce Your Income Tax in Nigeria?
- PAYE Tax in Nigeria: A Complete Guide for Employees and Employers (2026)
Disclaimer
All figures are estimates based on the Nigeria Tax Act 2025. Individual results vary by employer structure, state of residence, and approved deductions. This article is for educational purposes only and does not constitute tax or financial advice.
