Payslips in Kenya use two kinds of tax saving, and many payrolls confuse them. A deduction comes off pay before the tax bands, so it saves tax at the employee’s top rate. A relief comes off the tax itself after the bands, so it saves its face value. A KES 10,000 pension deduction saves a 30% taxpayer KES 3,000. A KES 1,500 insurance relief saves exactly KES 1,500.
Since the Finance Act 2025, employers have to apply every relief and exemption an employee qualifies for when they work out PAYE. Leaving a valid mortgage certificate in a drawer is no longer just the employee’s problem.
The limits in force
| Item | Type | Monthly limit (KES) |
|---|---|---|
| Pension contributions, NSSF included | Deduction | Lowest of 30% of pensionable pay, the actual contribution and 30,000 |
| Post-retirement medical fund (PRMF) | Deduction | 15,000 |
| Owner-occupier mortgage interest | Deduction | 30,000 |
| SHIF | Deduction | No limit |
| Housing Levy, employee share | Deduction | No limit |
| Disability exemption | Exemption | First 150,000 of income |
| Personal relief | Relief | 2,400 |
| Insurance relief | Relief | 15% of premiums, up to 5,000 |
The PRMF, SHIF and Housing Levy deductions and the KES 30,000 mortgage limit apply from 27 December 2024 under the Tax Laws (Amendment) Act 2024. The mortgage limit was KES 25,000 before that.
Personal relief
KES 2,400 a month for residents, taken off the tax calculated on the bands. Two points cause most of the errors:
- One employer only. Give it in the employee’s main employment. KRA’s P10 guide limits it to resident primary employees. A second employer who also gives it under-deducts PAYE by KES 2,400 a month.
- Non-residents get none. Expatriates who don’t meet the residence tests get no personal relief and no insurance relief.
Insurance relief
15% of the premiums the employee pays on qualifying life, education and health policies, up to KES 5,000 a month. KRA’s guide ties it to premiums deducted through payroll, so you need the policy schedule and the deduction on the payslip. An employee paying an insurer directly claims through their own return instead. A premium of KES 12,000 a month gives relief of KES 1,800. Above premiums of about KES 33,333 a month, the relief stays at KES 5,000.
SHIF no longer earns insurance relief. It became a deduction in December 2024. If an old template still adds 15% of SHIF here, see the guide to SHIF for employers.
Pension contributions
NSSF counts towards the pension limit. Add the employee’s NSSF to their contributions to a registered pension or provident scheme. Then allow the lowest of three figures: the actual total, 30% of pensionable pay, and KES 30,000. In most payrolls pensionable pay is basic salary.
The 30% test is the one people forget. Take an employee on KES 60,000 basic who pays NSSF of KES 3,600 and puts KES 20,000 a month into a registered scheme:
| Test | KES |
|---|---|
| Actual contributions (3,600 + 20,000) | 23,600.00 |
| 30% of 60,000 | 18,000.00 |
| Fixed limit | 30,000.00 |
| Allowed | 18,000.00 |
PAYE falls from KES 8,538.35 to KES 4,218.35. The KES 5,600 above the limit gets no tax relief. That’s worth telling an employee who has just raised their voluntary contribution.
Employer contributions to a registered scheme are tax-free to the employee up to KES 30,000 a month. Above that, the excess is taxable.
Post-retirement medical fund
Contributions to a registered PRMF are deductible up to KES 15,000 a month. Before December 2024 these went into insurance relief. Now they are a deduction in their own right, so check that your payroll isn’t still treating them as premiums.
Mortgage interest
Interest on a loan to buy, build or improve the employee’s own home is deductible up to KES 30,000 a month. Ask for the lender’s interest certificate and keep it with the payroll file. KRA expects it on file if the deduction is challenged. The deduction is for owner-occupied homes only. Interest on a rental flat doesn’t qualify, however keen the employee is.
Disability exemption
An employee with a disability exemption certificate from KRA is exempt on the first KES 150,000 of monthly income. Take it off taxable pay after the other deductions. If taxable pay is below KES 150,000, PAYE is nil.
On KES 250,000 basic, taxable pay falls from KES 232,895 to KES 82,895. PAYE falls from KES 62,251.85 to KES 17,251.85, a saving of KES 45,000.
Certificates expire. Record the expiry date in the employee file and diarise it. When a certificate lapses, payroll has to stop the exemption until a renewal arrives. Carrying it on regardless creates a PAYE shortfall, and KRA will recover it from the employer.
Worked example: everything at once
An employee on KES 150,000 basic contributes KES 15,000 a month to a registered pension scheme and KES 5,000 to a PRMF. They pay KES 40,000 a month of mortgage interest and KES 12,000 a month of life premiums through payroll.
| Step | KES |
|---|---|
| Gross pay | 150,000.00 |
| Less NSSF | 6,480.00 |
| Less SHIF | 4,125.00 |
| Less Housing Levy | 2,250.00 |
| Taxable pay before other deductions | 137,145.00 |
| Less pension scheme (total 21,480 is within 30% and 30,000) | 15,000.00 |
| Less PRMF | 5,000.00 |
| Less mortgage interest (40,000, limited to 30,000) | 30,000.00 |
| Taxable pay | 87,145.00 |
| Tax on the bands | 20,926.85 |
| Less personal relief | 2,400.00 |
| Less insurance relief (15% of 12,000) | 1,800.00 |
| PAYE | 16,726.85 |
Without any of these, PAYE on the same salary is KES 33,526.85. The difference of KES 16,800 is KES 50,000 of deductions at 30%, plus the KES 1,800 relief.
Net pay is KES 88,418.15 after the pension, PRMF and premium deductions. The mortgage is paid to the bank directly, so it isn’t deducted on the payslip.
Getting the evidence right
Every deduction and relief here depends on paper. You need the pension scheme’s registration, the PRMF’s registration, the interest certificate, the policy schedule and the disability certificate. Ask for each one when the employee claims it. Review them every January, when certificates for the new year come in. The same figures appear on the P9 the employee uses for their return, so errors made in March surface again in June. See the guide to P9 forms.
To test an employee’s figures, start with the PAYE calculator.