The high costs of living are the Kenyan reality right now and one way to lessen your burden would be finding a means to reduce one’s tax burden. There are ways one can legally reduce their tax liability.
Filing your returns correctly and on time
This seems like an obvious solution but we have all been victims of the last minute rush on the iTax platform on the last day of June every year. Penalties from late filing go up to about Ksh. 20,000 and that is a lot of money. Doing what you’re supposed to do will save you an extra expense from penalties and interest.
Apply for the disability certificate
All disabled people that are earning an income get a tax exemption from the revenue authority provided they are registered with the right body and have dully filled the required forms. Additionally, besides tax exemptions on your income, they can import their ‘special’ cars duty-free if they comply with the requirements. It is important that one is registered with the National Council of Persons with Disabilities so that they enjoy maximum benefits. There are thousands of disabled persons unaware of these exemptions and they should be informed.
Saving with a Pension scheme
Besides N.S.S.F, a monthly contribution to any registered schemes allows you to enjoy a less tax burden. For any contribution Sh. 20,000 p.m and below it is tax allowable which means you save for your future easily and get to enjoy the benefits of reduced taxes. It is important that we prepare for retirement as soon as we start earning. Private pensions have competitive interest rates besides saving you Shs.240,000 p.a and even those in the diaspora can enjoy these benefits if they contribute.
Life Insurance plans
There is a tax relief of up to Ksh. 5,000 p.m if one is contributing to a life insurance plan. The interest accrued or other benefits as a result of having this plan are not subject to capital gains tax. This means that you save Shs. 60,000 a year on taxes if you take up insurance.
Contribute to a homeownership savings plan
One of the goals of the government is to ensure everyone has access to decent housing and attaching a tax relief when one is saving to buy a home is one of the ways to meet the goal. The Income Tax Act is clear that annual contributions towards an H.O.S.P of up to Ksh.48,000 are tax-free and also interest gotten from this investment will only be taxed if it exceeds Ksh. 3M. There are plans to amend the Act to double the tax benefit enjoyed currently.
Anyone planning on owning a home should refrain from taking the normal loans and aim at securing a mortgage because of its tax-exempt benefits through interest deductions. All interest accrued as a result of a personal mortgage is tax deductible up to a maximum of Ksh. 150,000 annually.
We work so hard for the money we earn and as a result, the taxman should only collect what they rightfully owe while us on the hand, we should utilize the benefits available through the Income Tax Act.