Tax Exemptions in Nigeria: What Is Tax-Free in 2026

Most Nigerians assume everything they earn is taxable. That is not true. Nigerian tax law provides several exemptions — incomes and benefits that you do not have to pay tax on. Knowing these can save you money and help you structure your compensation better.

Here is what is exempt from tax in Nigeria under the current laws.

Personal Income Exemptions

First NGN 800,000 of Taxable Income

Under the NTA 2026 tax bands, the first NGN 800,000 of your annual taxable income is taxed at 0%. This is effectively a tax-free threshold. If your taxable income (after deductions) is NGN 800,000 or less, you pay zero PAYE.

Minimum Wage Considerations

Workers earning at or near the minimum wage have historically been largely exempt from PAYE due to the combination of the tax-free threshold and consolidated relief allowance. The NTA 2026 bands continue this protection.

Exempt Income Categories

Gratuities and Severance Pay

Gratuity payments upon retirement or termination are exempt from tax, provided they are paid under an approved gratuity scheme. This includes payments from both the public and private sectors.

Death-in-Service Benefits

Life insurance payouts and death benefits paid to the family of a deceased employee are fully exempt from income tax.

Medical Reimbursements

Amounts reimbursed by your employer for actual medical expenses are not taxable. This includes hospital bills, medications, and specialist consultations. However, a fixed medical allowance (as opposed to reimbursement) may be taxable.

Leave Allowance (Partial)

The tax treatment of leave allowance depends on how it is structured. If it is part of your consolidated salary, it is taxed. If it is a separate reimbursement for leave-related expenses, arguments can be made for exemption. Consult a tax professional for your specific situation.

Business and Investment Exemptions

Small Business Exemption

The Nigeria Tax Act 2026 introduced a zero-rate for companies with annual turnover of NGN 50 million or less. If your business earns NGN 50 million or below annually, your company income tax rate is 0%. This is a major incentive for small businesses and startups.

Agricultural Income

Income from agricultural operations — farming, livestock, fishing, forestry — enjoys significant tax holidays and exemptions. New agricultural businesses can get up to 5 years of tax relief.

Export Processing Zone Income

Businesses operating in approved export processing zones enjoy corporate tax holidays and exemptions on export-related income.

Government Securities

Interest earned on government bonds, treasury bills, and other government securities is exempt from income tax. This makes them attractive for investors seeking tax-efficient returns.

Pension and Retirement Exemptions

Pension Contributions

Your 8% pension contribution is deducted from your gross salary before tax is calculated. While not technically an "exemption" on the income itself, it reduces your taxable income and therefore your tax bill.

Retirement Benefits

Pension payments received after retirement are exempt from tax. This applies to both the lump sum (up to the approved limit) and the monthly pension payments.

RSA (Retirement Savings Account) Returns

Investment returns earned within your Retirement Savings Account are not taxed until withdrawal at retirement.

Other Exemptions

Dividends from Nigerian Companies

Withholding tax is deducted at source on dividends, but the dividend itself is not subjected to further personal income tax if WHT has been properly deducted.

Scholarships and Educational Grants

Scholarships, bursaries, and educational grants received by students are exempt from income tax.

Diplomatic and International Organization Income

Income earned by diplomats and staff of certain international organizations operating in Nigeria may be exempt under bilateral agreements.

How to Claim Exemptions

Most exemptions are applied automatically through your employer's PAYE system. For others:

1. •Ensure your employer is aware of applicable exemptions
2. •For investment exemptions, confirm WHT was properly deducted
3. •For business exemptions, register with the relevant authority and maintain proper records
4. •File your annual returns to claim any refund for over-deducted tax

Do Not Leave Money on the Table

Many Nigerians overpay tax because they do not know what is exempt. If you have agricultural income, government securities, or are a small business owner under the NGN 50 million threshold, you could be paying tax you do not owe.

Taxee helps you understand exactly what you owe — and what you do not.

Calculate your actual tax liability →