You are probably paying more tax than you need to.
Not because your employer is doing anything wrong. But because most Nigerian employees never claim all the deductions they are legally entitled to under the Nigeria Tax Act 2025. The deductions sit there, unclaimed, while the full tax gets deducted month after month.
Under the NTA 2025, there are six categories of deductions that reduce your chargeable income before the tax bands are applied. Every naira you legitimately deduct is a naira that does not get taxed. This post explains each one, how much you can save, and exactly what you need to do to claim them.
Quick Reference: All 6 Deductions at a Glance
| # | Deduction | Amount | Cap | Documentation |
|---|---|---|---|---|
| 1 | Pension (employee) | 8% of pensionable emoluments | No cap | PFA statement |
| 2 | NHF Contribution | 2.5% of basic salary | No cap | NHF enrollment + receipts |
| 3 | NHIS / Health Insurance | Actual premium | No cap | HMO / NHIS certificate |
| 4 | Life Insurance Premium | Actual premium | No cap | Policy document + receipts |
| 5 | Rent Relief (new) | 20% of annual rent | N500,000 | Tenancy agreement + receipts |
| 6 | Voluntary Pension (above 8%) | Actual amount contributed | No cap | PFA confirmation |
Now let us go through each one properly.
01 Pension Contribution (Employee’s 8%)
This is the one deduction that virtually every employee already claims, but many do not understand.
Under the Pension Reform Act and the NTA 2025, you contribute a minimum of 8% of your pensionable emoluments to your Retirement Savings Account (RSA) every month. This contribution is deducted from your salary before PAYE is calculated.
Pensionable emoluments means your basic salary plus housing allowance plus transport allowance. Not your full gross salary. Other allowances like utility, meal, and leave are not included in the pension base.
Annual pension deduction = 8% x (Basic + Housing + Transport). This reduces your chargeable income by the full pension amount.
For someone earning N300,000 per month with N150,000 basic, N90,000 housing, and N60,000 transport: pensionable emoluments are N300,000 per month, pension is N24,000 per month (N288,000 per year), and that N288,000 is deducted from gross income before tax.
Tax saving at 15% band: N288,000 x 15% = N43,200 per year saved.
What to do: Nothing extra if your employer is already deducting pension. Confirm the base (pensionable emoluments) is correct on your payslip.
02 NHF Contribution
Underused by employees who do not realise they are enrolled, and unclaimed by those who are not but could be.
The National Housing Fund (NHF) requires enrolled employees to contribute 2.5% of their monthly basic salary to the Federal Mortgage Bank of Nigeria. If you are registered, this contribution is tax-deductible.
The NHF is managed by the Federal Mortgage Bank of Nigeria (FMBN). In addition to the tax saving, it qualifies you to access affordable mortgage financing later. For most salary earners, it is worth enrolling for both reasons.
NHF deduction = 2.5% x Basic Salary. Deductible only if you are registered with the FMBN through your employer.
Tax saving example: If your basic salary is N150,000 per month, your annual NHF contribution is N45,000. At a 15% band, that saves N6,750 in annual tax.
What to do: Ask your HR team whether you are already enrolled in the NHF. If not, request enrollment. Once enrolled, the 2.5% deduction should appear on your payslip and be applied before PAYE is calculated.
03 NHIS or Health Insurance Premium
One most employees have but many do not realise counts as a deduction.
If your employer deducts a health insurance premium from your salary, whether through the National Health Insurance Scheme (NHIS) or a private Health Management Organisation (HMO), that premium is tax-deductible under the NTA 2025.
There is no cap on this deduction. The full premium paid is deductible. What matters is that the insurance is a genuine, registered health plan and that you have documentation.
NHIS / Health Insurance deduction = Actual annual premium paid. No cap. Deductible in full from gross income.
Tax saving example: A N60,000 annual health insurance premium in the 15% band saves N9,000 per year in PAYE.
What to do: Confirm that your employer is applying the health insurance deduction before calculating your PAYE. Check your payslip. If the premium is being deducted from your net pay (after tax) rather than your gross (before tax), your employer is not handling it correctly.
04 Life Insurance Premium
Few people know this one exists. Fewer still claim it.
If you pay premiums on a qualifying life insurance policy, those premiums are deductible from your chargeable income under the NTA 2025. There is no cap. The full annual premium reduces your taxable income.
To qualify, the policy must be a genuine life assurance policy taken out in your name. Investment-linked or endowment policies may qualify depending on their structure. Check with your insurer.
Life Insurance deduction = Actual annual premium paid. No cap. Must be claimed in writing to your employer with a copy of the policy and payment receipts.
Tax saving example: A N120,000 annual life insurance premium saves N18,000 per year in PAYE at the 15% band.
What to do: If you have a life insurance policy, submit a written claim to your HR team with your policy document and annual premium receipts. This is a self-initiated deduction. Your employer will not apply it unless you ask.
05 Rent Relief
The biggest new deduction in the NTA 2025. Most eligible employees have not claimed it yet.
This is the replacement for the old Consolidated Relief Allowance (CRA). Under the NTA 2025, you can deduct 20% of your actual annual rent from your chargeable income, capped at N500,000 per year.
To get the maximum N500,000 deduction, you need to pay at least N2,500,000 per year in rent (N208,333 per month). Even if you pay far less than that, the deduction is still worth claiming.
Rent Relief = 20% of annual rent paid, capped at N500,000. Requires tenancy agreement and rent receipts. Must be claimed in writing.
Tax saving example: If you pay N840,000 per year in rent (N70,000/month), your rent relief is N168,000. At the 15% band, that saves N25,200 in annual PAYE, or N2,100 per month.
What to do: Gather your tenancy agreement and rent payment receipts. Submit a written claim to your HR or payroll team specifying your annual rent amount and the 20% relief you are claiming. This is a self-initiated deduction. See the companion article for the full claims process.
06 Voluntary Pension Contributions
The tax-efficient savings hack that almost nobody uses.
You are required to contribute 8% of your pensionable emoluments to your RSA. But you are allowed to contribute more, voluntarily, and any additional contribution above the mandatory 8% is also fully tax-deductible.
This means you can reduce your taxable income further, save more for retirement, and the government is essentially subsidising part of your additional savings through the tax saving.
Voluntary Pension = Any amount contributed above the mandatory 8%. Fully deductible. No cap. Contact your Pension Fund Administrator (PFA) to set this up.
Tax saving example: If you contribute an additional N100,000 per year voluntarily, you save N15,000 in annual PAYE at the 15% band. The net cost of saving N100,000 more is effectively N85,000.
What to do: Contact your PFA directly to increase your monthly contribution. Provide confirmation of the increased deduction to your employer so they can reflect it in payroll. Some employers handle this through HR. Ask.
The Combined Impact: What Claiming All 6 Deductions Looks Like
Here is a comparison for a N300,000/month earner at different deduction levels.
| Scenario | Gross Income | Chargeable Income | Annual Tax | Monthly Tax |
|---|---|---|---|---|
| Pension only (baseline) | N3,600,000 | N3,312,000 | N386,160 | N32,180 |
| + NHF | N3,600,000 | N3,222,000 | N369,960 | N30,830 |
| + NHF + Rent Relief (N840k/yr) | N3,600,000 | N3,054,000 | N338,220 | N28,185 |
| + NHF + Rent Relief + NHIS (N60k/yr) | N3,600,000 | N2,994,000 | N329,100 | N27,425 |
| All 5 deductions + life insurance (N120k/yr) | N3,600,000 | N2,874,000 | N311,520 | N25,960 |
The difference between claiming pension only (the baseline most people are on) and claiming all five available deductions is N74,640 less in annual tax, or N6,220 less per month. That is money that was always yours to keep. It just required submitting the right paperwork.
The One Rule That Applies to All of These
The NTA 2025 is explicit: deductions must be claimed in writing and supported by documentation. Your employer is not obligated to apply a deduction unless you have formally requested it and provided proof.
This means the responsibility is on you. Send the email. Submit the form. Attach the documents. Do it at the start of each tax year so the deductions apply from January. If you missed it, you can still claim a corrected deduction mid-year or through your annual tax return.
Once you have gathered your figures, use the NairaSeed Tax Calculator to see exactly how much each deduction saves you. Enter your gross salary and add each deduction one at a time to see the real naira impact on your monthly PAYE.
See how much each deduction saves you. The NairaSeed Tax Calculator lets you add each deduction individually and shows you the exact tax saving in real time. Enter your gross salary, then add pension, NHF, NHIS, rent relief, and life insurance step by step to see what each one does to your monthly take-home.
>> Calculate your deductions and tax saving here
Related reading on NairaSeed:
- 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?
- How to Calculate Your Chargeable Income in Nigeria: Step-by-Step (2026)
- PAYE Tax in Nigeria: A Complete Guide for Employees and Employers (2026)
Disclaimer
All figures are estimates based on the Nigeria Tax Act 2025. Tax savings depend on your income band and deduction amounts. This article is for educational purposes only and does not constitute tax or financial advice. For personalised guidance, consult a qualified tax professional or your State Internal Revenue Service.
