Kenya Revenue Authority (KRA) has given employers fresh guidance on applying income tax deductions, reliefs, and exemptions following recent amendments to the tax law.
In a statement released on Thursday, October 2, the tax agency informed employers, employees, and the general public that the Finance Act, 2025, has amended the Income Tax Act, Cap 470, mandating employers to apply all relevant tax deductions, reliefs, and exemptions when computing income tax on employee emoluments.
The public notice, which comes as employers prepare payroll calculations, provides specific guidance on implementing the changes.
KRA has directed employers to apply personal relief to all resident employees as stipulated under the Act.
The authority has also instructed employers to allow insurance relief, mortgage interest deductions, and contributions to registered pension schemes and Post-Retirement Medical Funds, provided these are declared by the employee, supported by the necessary documentation, and fall within the statutory limits.
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Employers have been directed to deduct statutory levies and contributions paid by employees, such as the Affordable Housing Levy and contributions to the Social Health Insurance Fund, per the Act.
The tax agency has emphasized that employers must recognize and apply tax exemptions for employees who hold valid tax exemption certificates, subject to the prescribed limits.
KRA has further stressed the importance of ensuring accurate and timely submission of PAYE returns, reflecting all applicable reliefs, deductions, and exemptions. Employees have been advised to promptly provide their employers with all required documentation to support claims for deductions and reliefs, where applicable.
The guidance follows significant changes introduced through the Tax Laws Amendment Act, which was signed into law in December 2024 and affected the computation of Pay As You Earn.
The amendments introduced new deductions in determining taxable employment income, including contributions to the Housing Levy, Social Health Insurance Fund, and post-retirement medical funds, capped at fifteen thousand monthly shillings.
Under the amended law, employees can claim deductions for mortgage interest on loans from designated financial institutions, up to a limit of three hundred and sixty thousand shillings annually, for residential properties they occupy.
Contributions to registered pension or provident funds remain deductible up to the same annual limit.
The Act eliminated reliefs for contributions to the Housing Levy and post-retirement medical funds. However, certain benefits and advantages employers provide are now exempt from taxation, provided they fall within specified limits. These include benefits valued at less than sixty thousand shillings annually and meals provided by an employer, capped at five thousand monthly shillings.
