Ways to earn tax relief!

The tax burden in Kenya is increasing each financial year, and as the country’s budget grows, citizens are parting with more and more. But did you know individual taxpayers are entitled to tax incentives which reduce taxable income?

Tax relief is any program or incentive that reduces the amount of tax owed by an individual or business entity. Examples of tax relief include the allowable deduction for pension contributions

Here are 10 ways to do just that according to Ernst and Young:

1. Home ownership plans

Planning for a home helps you save towards your future while at the same time giving you a huge tax relief incentive. You are allowed a deduction against taxable income, of deposits to an approved Home Ownership Savings Plan (HOSP), of up to Sh4,000 per month (Sh48,000 per year) for 10 years.

2. Pension and provident fund

On top of guaranteeing a financially secure retirement, contribution to registered pension plans is tax deductible, capped at the lesser of 30 per cent of pensionable pay, actual contribution made or Sh20,000 per month. With this amazing deduction, you can reduce tax payable by up to Sh72,000 per year.

3. Mortgage

Owning a home is quite expensive in Kenya. Taking a mortgage to buy a home leaves you with a huge debt to settle. But this is always a move in the right direction as you will have a home under your name and will reduce your taxable income by the interest paid on mortgage.

Interest paid on mortgage taken for owner occupied house is deductible for tax, up to Sh25,000 per month (Sh300,000 per year). Interest on mortgages taken from a Sacco also qualify for this deduction.

4. Meals

Value of meals served to employees in a canteen or cafeteria operated or established by the employer or provided by a third party who is a registered taxpayer where the value of the meals does not exceed Sh48,000 per year is not taxable.

5. Life insurance

Life insurance allows every taxpayer some relief. Apart from guaranteeing that your loved ones are taken care of when you are injured, gone or alternatively cashing in on your policy, insurance plans significantly reduces the amount of tax paid per month. The amount of relief is 15 per cent of premiums paid, subject to a maximum of Sh5,000 per month or Sh60,000 per year.

6. Education plan

Many education policies have been rolled out by several insurance companies over the years with a promise to secure your child’s educational future incase of any eventualities like death, disability or loss of income. Some of this policies also have a life assurance aspect and burial arrangements.

To put the cherry on top, an educational policy of at least 10 years also allows you a tax relief of 15 per cent of premiums paid, subject to a maximum of Sh5,000 per month or Sh60,000 per year.

7. File returns

Filing your tax returns, which is every citizen’s responsibility and duty, before June 30, the last day of every financial year, saves you a penalty of Sh20,000 or a monthly penalty of two per cent for outstanding tax due.

8. Persons with disabilities

Persons with disabilities, who have an exemption certificate, are exempt from tax on income up to Sh150,000 per month (Sh1.8 million per year).

9. Bonuses, overtime and retirement benefits

Bonuses, overtime allowance and retirement benefits paid to low income earners (employees in the 10 per cent tax bracket) are tax exempt.

10. Tax-free non-cash benefits

Non-cash benefits, which include f travelling tickets, Christmas vouchers, food stuff and cooking oil provided by employer, whose aggregate value does not exceed Sh3,000 per month (Sh36,000 per year) are exempt from tax.

 

From (http://www.mediamaxnetwork.co.ke/people-daily/444255/ways-to-earn-tax-relief/)