Tax Reliefs and Allowances in Nigeria: Complete Guide (2025)
Tax reliefs and allowances are legal deductions that reduce your taxable income, thereby lowering your tax burden. Under the Nigeria Tax Act 2025, both employees and self-employed individuals can claim various reliefs to optimize their tax position.
This comprehensive guide covers every tax relief and allowance available, how to claim them, and strategies to maximize your tax savings.
Table of Contents
- Understanding Tax Reliefs vs. Allowances
- Consolidated Relief Allowance (CRA)
- Pension Contribution Relief
- National Housing Fund (NHF) Relief
- National Health Insurance Scheme (NHIS) Relief
- Life Insurance Premium Relief
- Gratuity and Severance Exemptions
- Other Allowances and Exemptions
- How to Claim Tax Reliefs
- Tax Relief Optimization Strategies
- Common Mistakes to Avoid
Understanding Tax Reliefs vs. Allowances {#understanding}
Tax Reliefs
Definition: Deductions from gross income to arrive at taxable income
Effect: Reduces the income on which tax is calculated
Example:
- Gross Income: ₦5,000,000
- Tax Relief: ₦1,000,000
- Taxable Income: ₦4,000,000 (tax calculated on this amount)
Tax Allowances
Definition: Specific deductions or exemptions provided by law
Effect: Reduces tax liability or exempts certain income from tax
Example:
- Gratuity received: ₦2,000,000
- Tax on gratuity: ₦0 (100% exempt)
Tax Credits (Rare in Nigeria)
Definition: Direct reduction of tax payable (not common in Nigerian tax system)
Most Nigerian tax benefits are reliefs (reduce taxable income), not credits (reduce tax directly).
Why Tax Reliefs Matter:
Example Calculation:
Without Reliefs:
- Gross Income: ₦6,000,000
- Taxable Income: ₦6,000,000
- Tax (progressive rates): ₦1,065,000
With ₦2,000,000 in Reliefs:
- Gross Income: ₦6,000,000
- Tax Reliefs: ₦2,000,000
- Taxable Income: ₦4,000,000
- Tax: ₦615,000
Tax Savings: ₦450,000 (42% reduction!)
Consolidated Relief Allowance (CRA) {#cra}
What is CRA?
The Consolidated Relief Allowance is an automatic tax relief granted to all taxpayers (employees and self-employed) to cover basic living expenses.
Who Qualifies:
✓ All employees earning above ₦30,000 annually
✓ All self-employed individuals
✓ Automatically calculated (no application needed)
How CRA is Calculated:
CRA is the HIGHER of:
Option 1: (1% of gross income) + ₦200,000
Option 2: 20% of gross income
Maximum CRA: ₦2,400,000
Calculation Examples:
Example 1: Low Income (₦1,200,000/year)
Option 1:
- (1% × ₦1,200,000) + ₦200,000
- ₦12,000 + ₦200,000 = ₦212,000
Option 2:
- 20% × ₦1,200,000 = ₦240,000
CRA = ₦240,000 (higher amount)
Example 2: Medium Income (₦5,000,000/year)
Option 1:
- (1% × ₦5,000,000) + ₦200,000
- ₦50,000 + ₦200,000 = ₦250,000
Option 2:
- 20% × ₦5,000,000 = ₦1,000,000
CRA = ₦1,000,000 (higher amount)
Example 3: High Income (₦15,000,000/year)
Option 1:
- (1% × ₦15,000,000) + ₦200,000
- ₦150,000 + ₦200,000 = ₦350,000
Option 2:
- 20% × ₦15,000,000 = ₦3,000,000
CRA = ₦2,400,000 (capped at maximum)
CRA for Employees vs. Self-Employed:
Employees:
- CRA calculated automatically by employer
- Reflected in payslip
- No action needed
Self-Employed:
- Calculate CRA yourself
- Include in annual tax return
- Reduces taxable business income
Tax Savings from CRA:
Example:
- Gross Income: ₦6,000,000
- CRA: ₦1,200,000
- Taxable Income: ₦4,800,000
Tax Calculation:
- Without CRA: Tax on ₦6M = ₦1,065,000
- With CRA: Tax on ₦4.8M = ₦813,000
- Savings: ₦252,000!
Pension Contribution Relief {#pension}
What is Pension Relief?
Contributions to a Retirement Savings Account (RSA) are tax-deductible, reducing your taxable income.
Who Qualifies:
✓ All employees contributing to RSA through employer
✓ Self-employed individuals contributing voluntarily to RSA
✓ Must contribute through a licensed Pension Fund Administrator (PFA)
Contribution Rates:
For Employees:
Mandatory Contribution:
- Employee: 8% of monthly basic + housing + transport
- Employer: 10% (not tax-deductible for employee, but for employer)
Voluntary Additional Contribution:
- Employee can contribute extra (above 8%)
- Total tax-deductible contribution: up to 20% of gross income
For Self-Employed:
- Voluntary contribution up to 20% of gross income
- Fully tax-deductible
Maximum Deductible Amount:
Up to 20% of gross annual income
Example:
- Gross Income: ₦6,000,000
- Maximum pension relief: ₦6,000,000 × 20% = ₦1,200,000
Calculation Examples:
Example 1: Employee (₦400,000/month salary)
Annual Gross: ₦4,800,000
Mandatory 8% Contribution:
- ₦4,800,000 × 8% = ₦384,000/year
Voluntary Additional Contribution:
- Maximum deductible: 20% × ₦4,800,000 = ₦960,000
- Already contributing: ₦384,000
- Additional voluntary contribution allowed: ₦576,000
Total Tax Relief:
- ₦384,000 (mandatory) + ₦576,000 (voluntary) = ₦960,000
Example 2: Self-Employed (₦10,000,000/year income)
Contribution:
- 15% voluntary contribution: ₦1,500,000
Tax Relief:
- ₦1,500,000 (fully deductible, within 20% limit)
Tax Savings:
- Tax Rate: 24% (high earner)
- Savings: ₦1,500,000 × 24% = ₦360,000!
Benefits of Pension Relief:
✓ Immediate Tax Savings: Reduce tax by 7-24% of contribution
✓ Retirement Security: Build tax-deferred retirement fund
✓ Compound Growth: Investment returns grow tax-free until withdrawal
✓ Flexibility: Can access 25% lump sum at retirement tax-free
How to Maximize:
- Contribute the Maximum 20% if cash flow allows
- Make Voluntary Contributions above mandatory 8%
- Contribute Early in the Year to maximize compound growth
- Choose High-Performing PFA to maximize returns
Documentation Required:
- RSA PIN certificate
- Statement from PFA showing contributions
- Contribution receipts
National Housing Fund (NHF) Relief {#nhf}
What is NHF Relief?
Contributions to the National Housing Fund are tax-deductible and provide access to low-interest mortgages.
Who Qualifies:
✓ Employees earning above ₦30,000/month
✓ Self-employed individuals (voluntary)
Contribution Rate:
2.5% of monthly basic salary (for employees)
2.5% of gross income (for self-employed, voluntary)
How NHF Works:
- Contribute 2.5% of gross income monthly/annually
- Claim tax relief on contribution
- Qualify for mortgage at 6% interest (vs. 20-25% commercial rates)
Calculation Examples:
Example 1: Employee (₦300,000/month salary)
Annual Gross: ₦3,600,000
NHF Contribution:
- 2.5% × ₦3,600,000 = ₦90,000/year
Tax Relief:
- ₦90,000 deductible
Tax Savings:
- Tax Rate: 15%
- Savings: ₦90,000 × 15% = ₦13,500
Example 2: Self-Employed (₦8,000,000/year income)
NHF Contribution:
- 2.5% × ₦8,000,000 = ₦200,000/year
Tax Relief:
- ₦200,000 deductible
Tax Savings:
- Tax Rate: 21%
- Savings: ₦200,000 × 21% = ₦42,000
Benefits of NHF:
✓ Tax Relief: Immediate deduction from taxable income
✓ 6% Mortgage: vs. 20-25% commercial rates (save millions!)
✓ Forced Savings: Build housing fund over time
✓ Refundable: Can request refund if not used for mortgage (after conditions met)
NHF Mortgage Example:
Property Value: ₦20,000,000
Mortgage: ₦18,000,000 (90% LTV)
Tenure: 30 years
Commercial Rate (20%):
- Monthly Payment: ₦301,776
- Total Paid: ₦108,639,360
NHF Rate (6%):
- Monthly Payment: ₦107,860
- Total Paid: ₦38,829,600
Savings: ₦69,809,760 over 30 years!
How to Contribute:
Employees:
- Deducted automatically by employer
- Remitted to Federal Mortgage Bank of Nigeria (FMBN)
Self-Employed:
- Register on FMBN portal
- Generate payment reference
- Pay via bank or online
- Keep receipt for tax filing
National Health Insurance Scheme (NHIS) Relief {#nhis}
What is NHIS Relief?
Contributions to the National Health Insurance Scheme are 100% tax-deductible.
Who Qualifies:
✓ All employees (mandatory for public sector, voluntary for private)
✓ Self-employed individuals (voluntary)
Contribution Rates:
For Employees (Formal Sector Social Health Insurance Programme):
Total Contribution: 10% of basic salary
- Employee: 5%
- Employer: 5%
Tax Relief: Employee's 5% contribution is tax-deductible
For Self-Employed (Informal Sector Social Health Insurance Programme):
Annual Premium: ₦15,000 - ₦50,000 (varies by plan and dependents)
Tax Relief: 100% of premium paid
Calculation Examples:
Example 1: Employee (₦200,000/month basic salary)
Annual Basic: ₦2,400,000
NHIS Contribution:
- 5% × ₦2,400,000 = ₦120,000/year
Tax Relief:
- ₦120,000 deductible
Tax Savings:
- Tax Rate: 11%
- Savings: ₦120,000 × 11% = ₦13,200
Example 2: Self-Employed (Family Plan)
NHIS Premium: ₦40,000/year (self + spouse + 2 children)
Tax Relief:
- ₦40,000 deductible
Tax Savings:
- Tax Rate: 19%
- Savings: ₦40,000 × 19% = ₦7,600
Benefits of NHIS:
✓ Tax Relief: Full deduction from taxable income
✓ Health Coverage: Access to primary, secondary, tertiary care
✓ Family Coverage: Spouse + 4 children covered
✓ No Pre-Existing Condition Exclusions: Unlike private insurance
✓ Affordable: Much cheaper than private health insurance
Coverage Includes:
- Out-patient care
- In-patient care (hospitalization)
- Maternity care
- Prescription drugs
- Diagnostic tests
- Surgeries
- Dental care (basic)
- Eye care (basic)
How to Enroll:
Employees:
- Enroll through employer's HMO (Health Maintenance Organization)
Self-Employed:
- Visit NHIS website
- Choose HMO
- Select plan
- Pay premium
- Receive enrollment card
Documentation for Tax Relief:
- NHIS enrollment certificate
- Premium payment receipt
- HMO confirmation letter
Life Insurance Premium Relief {#life-insurance}
What is Life Insurance Relief?
Premiums paid on life insurance policies are 100% tax-deductible with no limit.
Who Qualifies:
✓ All taxpayers who pay life insurance premiums
✓ Policy must be issued by a Nigerian insurance company or recognized foreign insurer
Eligible Policies:
✓ Term Life Insurance
✓ Whole Life Insurance
✓ Endowment Policies
✓ Education Insurance Plans
❌ NOT eligible:
- General insurance (car, property)
- Health insurance (covered under NHIS relief)
Calculation Examples:
Example 1: Term Life Policy
Annual Premium: ₦100,000
Coverage: ₦10,000,000
Tax Relief:
- ₦100,000 deductible
Tax Savings:
- Tax Rate: 15%
- Savings: ₦100,000 × 15% = ₦15,000
Net Cost of Insurance:
- ₦100,000 - ₦15,000 = ₦85,000 (effective cost)
Example 2: Whole Life Policy
Annual Premium: ₦300,000
Coverage: ₦25,000,000
Tax Relief:
- ₦300,000 deductible
Tax Savings:
- Tax Rate: 21%
- Savings: ₦300,000 × 21% = ₦63,000
Net Cost:
- ₦300,000 - ₦63,000 = ₦237,000
Benefits of Life Insurance Relief:
✓ Unlimited Deduction: No cap on deductible amount
✓ Family Protection: Cover loved ones financially
✓ Estate Planning: Proceeds pass tax-free to beneficiaries
✓ Reduced Effective Cost: Tax savings lower net premium
Optimization Strategy:
High earners should:
- Get adequate life insurance coverage (10-15× annual income)
- Pay annual premium (vs. monthly) to claim full deduction in one year
- Choose policies with cash value for additional savings
Example:
- Income: ₦10,000,000/year
- Life insurance: ₦1,000,000/year premium
- Tax Rate: 24%
- Tax Savings: ₦240,000/year
- Over 20 years: ₦4,800,000 saved!
Documentation Required:
- Insurance policy certificate
- Premium payment receipts
- Insurance company confirmation letter
Gratuity and Severance Exemptions {#gratuity}
What is Gratuity?
Gratuity is a lump-sum payment made to an employee upon retirement or end of employment.
Tax Treatment: 100% tax-free in Nigeria
Who Qualifies:
✓ All employees receiving gratuity upon retirement or termination
✓ Contract workers receiving end-of-contract gratuity
✓ Self-employed receiving gratuity from a contract
Calculation:
Typical Gratuity Formula (varies by employer):
Private Sector:
- Last monthly salary × number of years worked
Public Sector:
- Varies (often 300% of annual basic salary for retirement)
Exemption Examples:
Example 1: Private Sector Employee
Final Salary: ₦500,000/month
Years of Service: 20 years
Gratuity:
- ₦500,000 × 20 = ₦10,000,000
Tax on Gratuity: ₦0 (100% exempt)
Without Exemption (hypothetical):
- Tax at 24% = ₦2,400,000
- Tax Saved: ₦2,400,000!
Example 2: Contract Worker
Contract Value: ₦5,000,000
Gratuity Component: ₦1,000,000
Tax on Gratuity: ₦0
Other Tax-Exempt Severance:
1. Retirement Benefits
Tax-free if received from:
- Approved pension scheme
- Provident fund
- Retirement savings account (lump sum at retirement)
2. Redundancy/Retrenchment Payments
Exemption:
- First ₦10,000,000 is tax-free
- Above ₦10M taxed at 10% (reduced rate)
Example:
- Redundancy package: ₦15,000,000
- Tax-free: ₦10,000,000
- Taxable: ₦5,000,000 × 10% = ₦500,000 tax
- vs. Standard tax of ₦2,760,000 (saved ₦2,260,000!)
3. Death-in-Service Benefits
100% tax-free to beneficiaries
Documentation:
- Employer's letter confirming gratuity
- Payment evidence
- Retirement/termination letter
Other Allowances and Exemptions {#other-allowances}
1. Transport Allowance
Exemption: Up to ₦200,000/year OR actual transport costs (whichever is higher)
Who Qualifies: Employees using personal vehicle for work
2. Meal/Lunch Allowance
Exemption: Reasonable amounts (no fixed limit, must be documented)
Typical: ₦30,000-50,000/month considered reasonable
3. Rent-Free Accommodation
Exemption: Accommodation provided by employer for convenience (e.g., security guards, live-in staff)
Taxable: Accommodation as benefit-in-kind valued at market rent
4. Leave Grant/Travel Allowance
Exemption: Reasonable amounts for annual leave travel
Typical: ₦100,000-300,000/year
5. Utilities
Exemption: Employer-provided utilities (electricity, water, generator fuel) at workplace
Taxable: Utilities at employee's home (benefit-in-kind)
6. Medical Expenses
Exemption: Medical treatment provided by employer or reimbursed
Note: Different from NHIS relief (which is insurance contribution)
7. Education Allowance
Exemption: Children's school fees paid by employer
Typical Limit: ₦100,000-500,000/child/year (varies by employer)
8. Foreign Service Allowance
Exemption: 25% of income for employees working temporarily abroad (up to 183 days/year)
How to Claim Tax Reliefs {#how-to-claim}
For Employees:
1. Automatic Reliefs:
These are claimed automatically by your employer:
- Consolidated Relief Allowance (CRA)
- Pension contribution (8% mandatory)
- Transport, meal, other allowances (if provided)
No Action Needed: Check payslip to verify reliefs are applied
2. Additional Reliefs to Declare:
You must inform your employer of:
- Voluntary pension contributions (above 8%)
- NHF contributions
- NHIS contributions
- Life insurance premiums
How:
- Provide receipts/certificates to HR/accounts
- Employer updates tax computation
- Reflected in monthly PAYE deduction
For Self-Employed:
Include in Annual Tax Return:
-
Calculate Each Relief:
- CRA (automatic calculation)
- Pension contributions (provide RSA statement)
- NHF (provide FMBN receipt)
- NHIS (provide HMO receipt)
- Life insurance (provide policy + premium receipt)
-
Complete Self-Assessment Form:
- Section on "Tax Reliefs and Allowances"
- Enter each relief amount
- Attach supporting documents
-
Submit via TaxPro-Max:
- Upload return online
- Attach scanned documents
- System calculates tax after reliefs
Documentation Checklist:
For each relief claimed, keep:
- ☐ Payment receipt
- ☐ Certificate/enrollment proof
- ☐ Statement from provider (PFA, FMBN, HMO, Insurer)
- ☐ Annual summary of contributions
Retention: Minimum 6 years
Tax Relief Optimization Strategies {#optimization}
1. Stack All Available Reliefs
Strategy: Claim EVERY relief you qualify for
Example:
- Gross Income: ₦8,000,000
Reliefs:
- CRA: ₦1,600,000 (20% of ₦8M)
- Pension (20%): ₦1,600,000
- NHF (2.5%): ₦200,000
- NHIS: ₦50,000
- Life Insurance: ₦200,000
- Total Reliefs: ₦3,650,000
Taxable Income: ₦8M - ₦3.65M = ₦4,350,000
Tax Savings:
- Without reliefs: ₦1,665,000 tax
- With reliefs: ₦723,750 tax
- Saved: ₦941,250! (56% reduction!)
2. Maximize Pension Contributions
Strategy: Contribute the full 20% if financially feasible
ROI:
- Tax savings: 7-24% immediately
- Investment growth: 10-15%/year (average PFA returns)
- Compound effect over 20-30 years: Multimillion-naira retirement fund
3. Pay Annual Premiums (Not Monthly)
Strategy: Pay life insurance and NHIS annually to claim full deduction in one year
Example:
- Life insurance: ₦120,000/year
- Pay monthly: ₦10,000 × 12 = harder to track for tax
- Pay annually: ₦120,000 once = clean deduction
4. Time Large Contributions in High-Income Years
Strategy: If income varies, make larger pension/NHF contributions in high-income years
Example:
- 2024: Income ₦15M (tax bracket 24%)
- 2025: Income ₦5M (tax bracket 15%)
- Make ₦3M pension contribution in 2024 (save 24% = ₦720K) vs. 2025 (save 15% = ₦450K)
5. Combine Employer & Personal Contributions
Strategy (for Employees): Salary sacrifice arrangement
How:
- Negotiate with employer to reduce salary by ₦X
- Employer contributes ₦X to your pension/NHF
- You get full tax relief + employer saves PAYE costs too
Win-Win: Both parties save tax
6. Use Reliefs to Offset Bonuses
Strategy: If receiving large bonus, make lump-sum pension/NHF contribution to offset tax
Example:
- Bonus: ₦2,000,000 (would be taxed at 24% = ₦480,000)
- Make ₦2,000,000 pension contribution
- Tax on bonus: ₦0 (offset by relief)
7. Track All Reliefs Monthly
Tools:
- Spreadsheet to track contributions
- Accounting software (QuickBooks, Zoho)
- Mobile apps from PFA, NHIS, Insurers
Benefit: Never miss a deductible contribution
8. Get Professional Tax Planning
When:
- Income above ₦10M/year
- Multiple income sources
- Complex financial situation
Average Cost: ₦100,000-500,000/year
Potential Savings: ₦500,000-5,000,000/year
ROI: 5-10× investment
Common Mistakes to Avoid {#mistakes}
1. Not Claiming All Reliefs
❌ Mistake: Only claiming CRA, ignoring pension, NHF, NHIS, insurance
Impact: Overpaying tax by 15-40%
✓ Solution: Review all 7 relief categories annually
2. Poor Documentation
❌ Mistake: Losing receipts, not keeping statements
Impact: Cannot prove reliefs in FIRS audit
✓ Solution: Digital filing system, cloud backup
3. Claiming Ineligible Reliefs
❌ Mistake: Claiming personal expenses as business deductions
Impact: Tax evasion penalties, prosecution
✓ Solution: Only claim legitimate, documented reliefs
4. Not Maximizing Pension
❌ Mistake: Contributing only mandatory 8%, missing 12% additional deduction
Impact: Lower tax savings + lower retirement fund
✓ Solution: Contribute full 20% if possible
5. Paying Life Insurance Monthly (Instead of Annually)
❌ Mistake: Harder to track and claim monthly payments
Impact: May miss deduction
✓ Solution: Pay annually for easier documentation
6. Not Informing Employer of Additional Reliefs
❌ Mistake: Paying NHF/NHIS but not telling employer
Impact: Employer doesn't reduce PAYE, you overpay monthly
✓ Solution: Submit receipts to HR quarterly
7. Exceeding 20% Pension Limit
❌ Mistake: Contributing 25% thinking all is deductible
Impact: 5% not deductible, wasted cash flow
✓ Solution: Contribute exactly 20% (or less)
Conclusion
Tax reliefs and allowances are powerful tools to legally reduce your tax burden in Nigeria. By understanding and claiming all available reliefs—especially CRA, pension, NHF, NHIS, and life insurance—you can save 30-60% of your tax while building long-term financial security.
Key Takeaways:
✓ CRA: Automatic relief (higher of 20% or 1%+₦200K, max ₦2.4M)
✓ Pension: Up to 20% deductible + retirement savings
✓ NHF: 2.5% deductible + 6% mortgage access
✓ NHIS: 100% deductible + health coverage
✓ Life Insurance: 100% deductible (no limit) + family protection
✓ Gratuity: 100% tax-free
✓ Document Everything: Keep receipts for 6 years
Action Plan:
- Audit Current Reliefs: Review what you're currently claiming
- Identify Gaps: Which reliefs are you missing?
- Enroll/Contribute:
- Open RSA and contribute 10-20%
- Enroll in NHF
- Get NHIS coverage
- Buy life insurance
- Document: Set up filing system for receipts
- Inform Employer: Provide relief documentation to HR
- Optimize Annually: Review and adjust contributions each year
Next Steps:
- Calculate Your Tax: Use our PAYE or Self-Employment Calculator
- AI Tax Advice: Ask our chatbot relief-specific questions
- Read More: Self-Employment Guide, VAT Guide
- Book Consultation: Connect with tax planning experts
Maximize your reliefs. Minimize your tax. Build your wealth.
Last Updated: January 2025 | Based on Nigeria Tax Act 2025
Disclaimer: This guide is for educational purposes. For personalized tax planning, consult a qualified tax professional.