Every month you see two numbers: what your employer says you earn, and what actually lands in your account. Under the Nigeria Tax Act 2025, which took effect on 1 January 2026, the gap between them works differently from before. This guide uses the bands written in the law itself and shows worked examples, so you can check your own payslip.
Explain it like I’m 5
Think of your salary as water poured into a row of buckets. The first bucket holds ₦800,000 a year and the tax is nothing. The next bucket is taxed at 15%, the next at 18%, and so on. You do not pay one rate on your whole salary. Only the water in each bucket is taxed at that bucket’s rate.
The tax bands in the law
The rates are in the Fourth Schedule of the Act (section 58). They apply to your taxable income each year:
- First ₦800,000: 0%
- Next ₦2,200,000: 15%
- Next ₦9,000,000: 18%
- Next ₦13,000,000: 21%
- Next ₦25,000,000: 23%
- Above ₦50,000,000: 25%
The Act says these rates apply to individuals “other than an individual earning the Minimum Wage”. So people on the national minimum wage are outside the schedule.
Taxable income is not the same as gross pay
The bands apply to your chargeable income, which is your total income less eligible deductions. Section 30 of the Act lists them:
- National Housing Fund contributions
- National Health Insurance Scheme contributions
- Pension contributions under the Pension Reform Act
- Interest on loans for developing an owner-occupied home
- Life insurance or annuity premiums
- Rent relief: 20% of the annual rent you pay, up to a maximum of ₦500,000, if you accurately declare the rent you actually paid
The tax authority can ask for documents to support a claim, so keep your rent receipts.
What you take home: worked examples
These examples assume your monthly salary is your gross pay, you pay 8% of it as pension, and you have no other deductions. Your real payslip will differ, because pension is usually calculated on basic, housing and transport allowances, and you may have other deductions.
- ₦150,000 a month: tax about ₦10,700 a month. Take-home about ₦127,300.
- ₦250,000 a month: tax about ₦24,500. Take-home about ₦205,500. If you pay ₦1,200,000 rent a year, relief of ₦240,000 cuts tax to about ₦21,500 and take-home rises to about ₦208,500.
- ₦500,000 a month: tax about ₦65,300. Take-home about ₦394,700. With ₦2,400,000 rent a year, tax falls to about ₦58,100 and take-home is about ₦401,900.
- ₦1,000,000 a month: tax about ₦148,100. Take-home about ₦771,900. With rent of ₦3,000,000 a year (relief capped at ₦500,000), tax is about ₦140,600 and take-home about ₦779,400.
One example step by step (₦250,000 a month)
- Annual pay: ₦250,000 × 12 = ₦3,000,000.
- Pension at 8%: ₦240,000. Taxable income: ₦2,760,000.
- First ₦800,000 at 0% = ₦0.
- Remaining ₦1,960,000 at 15% = ₦294,000 a year, or ₦24,500 a month.
- Take-home: ₦3,000,000 − ₦240,000 − ₦294,000 = ₦2,466,000 a year, or ₦205,500 a month.
How to use this on your own payslip
- Find your gross pay, pension, and any NHF or NHIS lines.
- Check whether you are claiming rent relief. You must declare the rent you actually paid.
- Ask HR or payroll how PAYE was calculated if your take-home looks very different from these examples.
Want to see how inflation affects what your salary can buy? Read our guide to real pay after inflation, and follow Tax Decoded on NairaDecoded.com for plain-English tax explainers.
FAQ
Is my whole salary taxed at 15%?
No. Only the part of your taxable income that falls in each band is taxed at that band’s rate. The first ₦800,000 a year is taxed at 0%.
Does everyone get ₦800,000 tax-free?
The ₦800,000 is the zero-rate band on your taxable income, which is your income after eligible deductions. It is not a flat allowance on gross pay.
What about people on the minimum wage?
The Act applies the Fourth Schedule rates to individuals other than those earning the Minimum Wage.
Sources
This article explains the law in general terms and is not tax advice. Examples are illustrative and use simplified assumptions. Your actual PAYE depends on your pay structure and deductions. See our Disclaimer, and check with your employer, payroll team or a qualified tax adviser.
