#BounceExclusive: 6 Ways To Reduce Your Tax Burden
This story is in continuation of our Tax Thursday series.
In this edition, we are looking at how you can reduce your tax burden through what is called Reliefs and Allowances.
Reliefs and Allowances are meant to reduce the tax burden of the individual in recognition of his personal financial responsibilities.
They are deductions allowed to an individual tax payer in a year of assessment to reduce the chargeable income of such individual.
Some of these reliefs and allowances automatically apply to you by law, while some of them apply to you based on some measures you take to enhance and protect your financial future.
Whichever option is applicable to you, in order to take advantage of it, you must be in the know.
Below are some of the reliefs and allowances that can help you to reduce your tax burden, provided they are claimed with supporting proof by an individual:
1. Personal Allowance: If your company makes provision for personal allowance, do not allow it to go to waste. Use it to reduce the tax that you pay.
The Nigerian tax law allows for a personal relief of 5,000 naira plus 20% of earned income.
2. Alimony Payment: Alimony is money that one pays a divorced spouse for maintenance.
The law makes provision to compensate for the emotional trouble that comes with getting a divorce.
Nigeria’s tax law allows for a deduction of the amount of any alimony not exceeding 300 naira (this amount may be subject to review) paid to a former spouse, under an order of a court of competent jurisdiction, in the case of an individual whose marriage has been dissolved.
Also Read: 13 Types Of Income Exempt From Tax
Make sure to provide evidence of the alimony payment, while filing for your tax, it is sure to bring down your tax bill.
3. Children Allowance: Having plenty children and training them is a bitter-sweet experience, and the state is aware of this.
The state shares your pain which is why the tax law allows for a deduction of 2,500 naira in respect of each unmarried child who was maintained by the individual (tax payer) during the year preceding the year of assessment.
The law however allows for that child, who, on the first day of that preceding year, had either not attained 16 years of age, or was receiving full time instruction in a recognized educational establishment, or was training for a skill or profession.
4. Dependent Relative Allowance: Dependency of relatives is the headache of every modern-day African. You can’t seem to escape it.
Therefore, the tax law makes provision for a deduction of the costs incurred by the tax payer during the year preceding the year of assessment in maintaining or assisting to maintain a close relative or that of your spouse.
The relatives must have either been incapacitated by old age or illness from maintaining himself or is the widowed mother (whether so incapacitated or not) of the individual’s spouse.
5. Life Assurance Allowance: Perhaps you had no idea that when you take a life insurance policy, that it was supposed to help reduce your tax burden.
Well, now you know.
Read More: How To Obtain Your Tax Identification Number
The law provides for a deduction of the Annual Amount of any premium paid by the individual during the year preceding the year of assessment to an insurance company in respect of insurance on his or the life of his spouse, or for a contract for a deferred annuity on his own life or the life of his spouse.
6. Disabled Person Allowance: There is ability in disability, a dictum says.
If you have any form of disability and can work with it, do use it to reduce your tax burden.
The law allows for a deduction of additional 3,000 naira or 20% of the earned income, whichever is higher, in the case of a disabled person who uses special equipment or the services of an attendant during a paid employment.
Please bear in mind that you must provide evidence of these financial responsibilities/liabilities before the law can apply to you.
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