Nigerian Tax Law: Understanding Eligible Deductions for Individuals

Nigerian Tax Law: Understanding Eligible Deductions for Individuals

When it comes to paying taxes in Nigeria, individuals often ask one key question: What deductions can reduce my taxable income? The Nigeria Tax Act, 2025 gives clear guidance on this, explaining how chargeable income is calculated and what expenses qualify as legitimate deductions.

What Is Chargeable Income?

Chargeable income is simply your total income for the year of assessment, minus the deductions that the law allows you to claim. These deductions are called “eligible deductions,” and they help lower the amount of tax you owe.

Eligible Deductions You Can Claim

The Act highlights several categories of deductions:

  • Statutory Contributions: Payments you make into the National Housing Fund, National Health Insurance Scheme, or under the Pension Reform Act all qualify.

  • Loan Interest: If you take a loan to develop an owner-occupied house, the interest on that loan is deductible.

  • Insurance & Annuities: Premiums you pay for life insurance (for yourself or your spouse) and annuities also count.

  • Rent Relief: You can claim 20% of your annual rent, up to a maximum of ₦500,000. However, you must declare the exact rent you paid and provide any required supporting documents.

Documentation Matters

The law places a strong emphasis on proof. You must make a formal written claim for deductions, and the tax authority has the right to demand documentary evidence such as receipts, contracts, or contribution statements. Without adequate proof, your deductions may be refused.

If your claim is disallowed in one year because you couldn’t provide evidence, but you later obtain proper documentation, you can still have your tax adjusted in a future year. This flexibility ensures fairness but also keeps taxpayers accountable.

Why This Matters for You

Understanding deductions is critical because it ensures you’re not paying more tax than necessary while staying fully compliant with the law. For example, if you’re paying rent, contributing to a pension, or maintaining life insurance, you could reduce your taxable income significantly—provided you keep proper records.

Final Thoughts

The Nigeria Tax Act is clear: deductions are there to help taxpayers, but they come with strict rules. Always make claims in writing, maintain documentary evidence, and declare expenses truthfully. By doing so, you not only stay compliant but also maximize your tax relief opportunities.

At Baha’s Books, we break down complex tax provisions into practical insights you can apply. Stay tuned as we continue to simplify the Nigerian Tax Act for individuals and businesses.

📖 Visit us at bahasbooks.com for more resources.

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