How Employers Should Apply Income Tax Deductions, Reliefs, and Exemptions

The Kenya Revenue Authority (KRA) has issued new guidance to employers following amendments to the Income Tax Act, Cap 470, introduced by the Finance Act, 2025.

The amendment now mandates all employers to apply relevant tax deductions, reliefs, and exemptions when computing income tax on employee emoluments.

To ensure compliance, KRA has outlined the following instructions:

Employers are required to apply personal relief to all resident employees as provided for under the Income Tax Act.

They must also allow insurance relief, mortgage interest deductions, and contributions to registered pension schemes and Post-Retirement Medical Funds, provided that these are declared by employees, supported by appropriate documentation, and fall within the statutory limits.

In addition, employers should deduct statutory levies and contributions such as the Affordable Housing Levy and contributions to the Social Health Insurance Fund (SHIF), as stipulated in the law.

Employers must also recognize and apply tax exemptions for employees who hold valid tax exemption certificates, within the prescribed limits. It is the employer’s responsibility to ensure the accurate and timely submission of PAYE returns, reflecting all applicable deductions, reliefs, and exemptions.

KRA has further advised employees to submit all necessary documentation promptly to support their claims for reliefs and deductions.

The Authority emphasized that compliance with these provisions is crucial to ensure that employees’ tax obligations are correctly computed and that they benefit from the deductions and reliefs provided for by law.