CHAPTER ONE

PRINCIPLES OF TAXATION
WHAT IS TAX?

Taxes are coercive contributions levied by a government entity. The target is all
individuals and companies that are included. The collected taxes will go into the
state treasury to fund various kinds of public expenditures, the ultimate goal of
which is the prosperity or welfare of the people.

It can also be defined as the compulsory contribution of individuals and companies

to the country according to the provisions and laws in force in each country.

The 18th-century economist and philosopher Adam Smith attempted to systematize

the rules that should govern a rational system of taxation. In The Wealth of
Nations, he set down four general canons:

I. The subjects of every state ought to contribute towards the support of the
government, as nearly as possible, in proportion to their respective abilities; that
is, in proportion to the revenue which they respectively enjoy under the protection
of the state.…

II. The tax which each individual is bound to pay ought to be certain, and not
arbitrary. The time of payment, the manner of payment, the quantity to be paid,
ought all to be clear and plain to the contributor, and to every other person.…

III. Every tax ought to be levied at the time, or in the manner, in which it is most
likely to be convenient for the contributor to pay it.…

IV. Every tax ought to be so contrived as both to take out and keep out of the
pockets of the people as little as possible over and above what it brings into the
public treasury of the state.…

These principles are summarized into two below

(1) the belief that taxes should be based on the individual's ability to pay,
known as the ability-to-pay principle
The ability-to-pay principle requires that the total tax burden will
be distributed among individuals according to their capacity to
 bear it, taking into account all of the relevant personal
characteristics. The most suitable taxes from this standpoint are
personal levies (income, net worth, consumption,
and inheritance taxes). Historically there was common agreement
that income is the best indicator of ability to pay

(2)the benefit principle

Under the benefit principle, taxes are seen as serving a function
similar to that of prices in private transactions; that is, they help
determine what activities the government will undertake and who
will pay for them. If this principle could be implemented,
the allocation of resources through the public sector would respond
directly to consumer wishes.

In fact, it is difficult to implement the benefit principle for most

public services because citizens generally have no inclination to
pay for a publicly provided service—such as a police department—
unless they can be excluded from the benefits of the service. The
benefit principle is utilized most successfully in the financing of
roads and highways through levies on motor fuels and road-user
fees (tolls).
THE CANONS ON WHICH TAX LAWS ARE BASED

These principles most are efficiency, convenience, certainty, and fairness.

Certainty implies that the taxing authority needs to clarify the reason and method of
paying the tax. Convenience deals with the ease of remitting taxes. Fairness means that
the taxes align with taxpayers' ability to pay based on their needs.

EQUITY OR FAIRNESS– This implies that every tax payer should pay in proportion to his
income. It is based on the payer's ability to pay.

CERTAINTY– This implies that the taxpayer must know the time of payment, the manner of
payment as well as the amount of tax to be paid.

CONVEVIENT– Every tax ought to be levied at the time, or in the manner, in

which it is most likely to be convenient for the contributor to pay it.

EFFICIENT- Tax efficiency is when an individual or business pays the least amount of taxes
required by law. A taxpayer can open income-producing accounts that are tax deferred, such as
an individual retirement account (IRA) or a 401(k) plan. Tax-efficient mutual funds are taxed at a
lower rate relative to other mutual funds.

IMPORTANCE OF TAXES
Tax revenue is the primary source of funding for development in almost all nations.
Therefore, the range of facilities and the standard of public services will be
impacted by tax contributions.

Taxpayers frequently cannot immediately experience the advantages of paying

taxes. In reality, many of the public facilities that are used today are a direct result
of handling tax payments. Consider the facilities such as hospitals, schools, and
public transport, as well as the streets that we pass every day.

THE NATURE OF TAXES

Direct Taxes, namely taxes that are imposed on taxpayers periodically, both individuals and
companies.
EXAMPLE
1. Personal Income Tax (PIT)
2. Company Income Tax (CIT)
3. Petroleum Profit Tax (PPT)
4. Property Tax
5. Capital Gain Tax (CGT)

Indirect Taxes, namely taxes that are imposed on taxpayers when carrying out certain events
or actions that are tax objects.
EXAMPLES
1. Withholding Tax
2. Value Added Tax
3. Customs Duties
4. Excise Duties
5. Sales Tax
6. Entertainment Tax
7. Service Tax
8. Stamp Duty

TERMINOLOGIES IN PERSONAL INCOME TAX

1. Income Tax Return
An income Tax Return (ITR) is a form or document that people and businesses in
India fill out to tell the government how much money they made and to pay taxes
accordingly. It helps the government figure out how much tax you need to pay
based on your earnings and deductions.

2. Gross Total Income

Gross Total Income is the total amount of money you earn before any deductions or
exemptions. It includes your salary, business income, rent, and any other taxable
income you receive. It’s the total sum of all the money you make before any taxes
are deducted.
3. Net Taxable Income
Net taxable income is the amount of money you have left after deducting certain
expenses and exemptions, like investments made to save tax, from your total
income. It is the income that is actually considered for calculating taxes. In simpler
terms, it’s the income on which you have to pay taxes after taking out certain
deductions and expenses.

4. Assessment Year (AY)

Assessment Year (AY) is the year when the government evaluates or checks your
income to calculate how much tax you need to pay. It comes after the year in which
you earned the income. For example, if you earned income in the year 2022, the
Assessment Year would be 2023-2024. It’s the year when the government looks at
your income and decides how much tax you owe.

5. Tax Deduction at Source (TDS)

Tax Deduction at Source (TDS) is when the government collects a portion of tax
directly from the income you receive. For example, if you earn a salary, your
employer deducts a certain amount of tax from your salary and sends it to the
government on your behalf. This ensures that tax is paid regularly throughout the
year.

8. Surcharge
A tax surcharge is like an extra fee added to the regular tax you have to pay. It is
imposed on people with higher incomes or certain types of income, such as capital
gains, dividends, interest income, rental income, and other sources of income apart
from regular salary income. The surcharge is calculated as a percentage of your tax
amount and is meant to increase the overall tax you owe. It helps the government
collect more money from those who earn more or have specific types of income.

9. Advance Tax
Advance tax is a system where you estimate and pay your taxes in installments
throughout the year rather than waiting until the year’s end. It applies to
individuals, professionals, and businesses whose tax liability exceeds a specified
amount. By making regular payments, it helps you manage your tax obligations and
avoid a large tax burden at the end of the year.

10. Self-Assessment Tax

Self-Assessment Tax is the extra tax you voluntarily pay if you still owe money to
the government after considering your regular deductions and advance tax
payments. It’s like making sure you’ve paid all your taxes correctly. You calculate
the remaining amount and pay it before the tax filing deadline. It helps you fulfill
your tax obligations and avoid penalties for unpaid taxes.

11. Section 80C

Section 80C is a rule that lets you save tax by investing in specific things like life
insurance, provident fund, and other savings schemes. You can reduce your
taxable income by up to ₹1.5 lakh if you invest in these things. It helps you save
money on taxes while encouraging you to save and invest for the future.
12. Tax audits
Tax audits are like a thorough check by the government on your financial records to
ensure you have reported your income and expenses correctly and paid the right
amount of taxes. They ensure that everyone follows the rules and pays their fair
share of taxes. If any mistakes or problems are found, you may have to pay more
taxes or face penalties.

13. Tax deductions

Tax deductions are special expenses or investments that you can subtract from
your income to pay less tax. They include things like medical expenses, home loan
interest, donations, and more. Claiming deductions lowers your taxable income and
helps you pay less in taxes. It’s like getting a discount on your taxes for certain
expenses or investments you make.

14. Tax exemptions

Tax exemptions are specific types of income that you don’t have to pay taxes on.
They include things like certain investments, allowances, scholarships, and more.
It’s like getting a break from paying taxes on certain earnings.

15. Tax slabs

Tax slabs are different income ranges where different tax rates apply. As your
income increases, you move into higher tax slabs with higher tax rates. It means
you pay more taxes as you earn more money. The tax slabs help determine how
much tax you owe based on your income level.

16. Tax-saving investments

Tax-saving investments are ways to save money and lower your tax bill. For
example, investing in a Public Provident Fund (PPF) or a tax-saving fixed deposit lets
you deduct the amount you invest from your taxable income. If you invest
=N=1.5m in PPF, that amount gets subtracted from your income, so you pay tax on
a lower amount.

CHAPTER TWO
ADMINISTRATIVE MACHINERIES AND INCOME TAX REGULATIONS IN NIGERIA
ADMINISTRATIVE STRUCTURE OF NIGERIA INCOME TAX SYSTEM

Nigeria has a decentralized tax system in which each level of government is in charge of
handling taxes within its own area of responsibility. Nigeria collects taxes from all levels of
government and uses the proceeds to pay for its expenditures. For taxes owed to each level of
government, a body has been established.

Taxes are established by law in Nigeria. Such tax must have been passed into law through
enactment of relevant statute (Act, By-law, decree among others). The tax law establishes the
administrative body and specify its tax jurisdiction. Tax structure in Nigeria is tailored towards
Nigerian governance hierarchy (Federal, State and Local Government).

Nigerian Tax Laws

Taxes are established by law in Nigeria. By implication, such tax must have been passed into
law through enactment of relevant statute (Act, By-law, decree among others). The tax law
establishes the administrative body and specify its tax jurisdiction. Tax laws impose tax at a
predetermined rate on specified income, profit, gain, and value of transactions of taxable
persons. These laws are amended from time to time in view of meeting present economic
situation, complexity of financial transaction, welfare, and social needs.

Structure of Nigerian Tax System

Tax structure in Nigeria is tailored towards Nigerian governance hierarchy (Federal, State and
Local Government). Nigeria operates a decentralized tax system where each level of
government is independently responsible for the administration of taxes within its jurisdiction.
Nigeria generate revenue to fund government expenditure through a pool of taxes from each tier
of government. A body is established for taxes due to each tier of government.

Tax Authorities

Federal Inland Revenue Service (FIRS) is the body that is responsible for the administration of
taxes that are due to the federal government. The various state boards of internal revenue
administer taxes that are due to state governments while the local government revenue
committees administer taxes that are due to local governments. However, joint tax board
advise, harmonize double taxation, and propose amendment.

Taxes

Companies Income Tax, Education Tax, Stamp Duties, Custom Duties, Excise Duties,
Withholding Tax and Value Added Tax are the major taxes administered by Federal Inland
Revenue Service, the State Board of Internal Revenue majorly administer Personal Income Tax
and Withholding Tax, while Local Government majorly administer levies.

Basis of Tax Administration

Taxes are established by tax statutes which form the basis of tax administration. These tax
statutes usually specify the tax rate, due date, basis of assessment, offences, and penalties of
the identified taxes.

Tax administration involves the registration, assessment, returns, collection, compliance

monitoring, compliance enforcement, sanction, taxpayer’s education and awareness and any
other activity that can improve the efficiency and effectiveness of taxation.
 i. Registration of Taxpayer: Taxpayer registration is done by submitting relevant information
as required by relevant tax authority. Taxpayer registration usually precede tax assessment,
collection, compliance monitoring and enforcement. Federal Inland Revenue Service (FIRS)
and State Board of Internal Revenue register taxpayer for taxes within their jurisdiction.
ii. Assessment of Taxpayers: Tax authorities assess taxpayers to taxes administered by them
and they can also reassess tax return rendered by taxpayers. The basis of assessing tax
(tax rate, basis period, and tax deduction) are stipulated in tax statute.
iii. Returns: Tax authorities usually require taxpayer to file information as required by relevant
tax statute and as further required with them. This is usually on a periodic basis (annually,
monthly) or as the need arises.
iv. Tax Collection: Tax collection is the next step after assessment either the taxpayer self-
assess himself or is assessed/reassessed by tax authority. Mode of tax remittance is usually
determined by relevant tax authority.
v. Compliance Monitoring: Tax authorities usually monitor tax compliance of taxpayers by
assessing their adherence to the provisions of relevant tax statute. This is usually done by
tax authorities at their respective offices by checking taxpayer’s file and/or visit taxpayer to
obtain further relevant information to complement information at their disposal to assess
taxpayer’s compliance with the provision of relevant tax statute.
vi. Compliance Enforcement: Tax authorities compliance can be enforced on taxpayer.

Sanction: Contravention with provision of relevant tax statute may lead to penalty or conviction.
Contravention include failure to furnish required information or failure to keep required record, or
any other non-compliance with relevant provision of required tax statute.

 Tax education and awareness: This is usually done through issuance of tax circulars and
other publications to aid taxpayer’s understanding of tax statutes.

PROCEDURE FOR PERSONAL INCOME TAX ASSESSMENTS

Personal Income Tax

Personal income refers to the total earnings or revenue received by an individual from
various sources during a given period, typically a financial year. It encompasses all the
money an individual earns from different activities and sources, both employment-related
and non-employment-related.

Eligibility to file

 All Nigerian residents aged 18 and above earning income from Nigerian sources are
required to file personal income tax returns. This includes salaried employees, self-
employed individuals, and those with other sources of income such as investments,
rental income, or business income.
  All members of the armed forces who received employment income (salaries,
allowances etc.) during the tax year are also required file annual Personal Income
Tax returns.
 Non-residents receiving Nigerian-sourced income are also required to file tax
returns.

Options for filing

 You can file your personal income tax return electronically via the e-Filing portals
provided by the Federal Inland Revenue Service (FIRS) or the State Board Internal
Revenue Service (SIRS) where you reside.
 Alternatively, you can submit paper tax returns at the nearest FIRS or SIRS tax
office. Tax office locator
 You can also use the services of an accredited tax professional or agent. Tax agents

Required documents

To file your personal income tax returns, it is required that you have the following documents

 Tax identification number (TIN) or registration number

 Completed tax return forms (manual or electronic)
 Evidence of income, such as payslips, bank statements, or financial records
 Supporting documents for any deductions or tax reliefs you wish to claim (e.g.,
receipts for donations, insurance premiums, etc.)
 Tax deduction cards from employers

How to file

Depending on your preferred method, you can use either of these options available:

Manual Filing

 Gather all required documents

 Download and fill the applicable tax form (Form A, B or H)
 Visit the nearest FIRS or State Internal Revenue Service office and submit the
completed forms along with the required supporting documents. Tax office locator
 Ensure that you obtain a receipt or acknowledgment for your records

Electronic Filing (e-filing)

 Gather all required documents

 Complete the applicable tax form (Form A, B or H)
 Login to the FIRS self filing system to file tax returns
 Accurately report your income sources and claim eligible deductions/reliefs
 Calculate your chargeable/taxable income and tax liability
 File the completed tax return before the due date
 Your TIN is critical for tax compliance - it must be accurately quoted on all tax forms,
payments and correspondence with tax authorities. Having a valid TIN also makes
you eligible for key services like tax clearance certificates.
Sign up to file tax returns

Tax deductions and credits

When filing your personal income tax returns, you may be eligible for various tax deductions
and credits, such as:

 Deductions for contributions to approved pension schemes, life insurance premiums,

and national housing fund.
 Tax reliefs for individuals with disabilities or dependents.
 Deductions for certain types of investment income or business expenses.
 Loss Relief for businesses
 Capital Allowances on assets

It is essential to consult with a tax professional or refer to the relevant tax regulations
to understand the deductions and credits available to you.

Status tracking for filed returns

 Both the State Internal Revenue Service and the FIRS typically provide mechanisms for
tracking the status of your filed personal income tax returns. This may involve checking
online portals, contacting designated helplines, or visiting the tax offices in person.

Deadlines and penalties

 The deadline for filing personal income tax returns in Nigeria is typically on an annual basis,
with the specific date varying across states and the FIRS. It is crucial to adhere to these
deadlines to avoid penalties and interest charges.
 Filing Due Date is 90 days after end of the tax year (March 31) for employed
individuals
 For self-employed/businesses it's 6 months after accounting year end

If you fail to file your personal income tax returns or pay the owed taxes on time, you
may be subject to penalties and interest charges imposed by the tax authorities. The
penalties can include fines, interest charges, or legal consequences in cases of non-
compliance.

Disputes

 In case of disputes or disagreements related to personal income tax assessments or

calculations, you have the right to file an objection or appeal with the relevant state or local
government revenue office.
 The process for filing an objection or appeal may vary based on the specific authority and
the nature of the dispute. It is advisable to seek professional assistance from a tax
consultant or legal expert to navigate the dispute resolution process effectively. More on tax
disputes.
Withholding tax

Withholding Tax is an advance tax deducted at source from certain types of payments made to
individuals or companies. It is withheld by the payer and remitted directly to the relevant tax
authorities.

PERSONS WHO ARE SUBJECT TO INCOME TAX

Individual Residents in Nigeria:

Any individual resident in Nigeria who earns income from employment, business, profession,
trade, or vocation is subject to tax.

The state tax authority of the individual's place of residence administers all such taxes.

THOSE EXEMPTED FROM INCOME TAXES

The payment of taxes is a statutory responsibility for businesses in Nigeria. This obligation is
statutory as it is imposed by law and the failure to comply could be met with applicable
sanctions which may include fines and a term of imprisonment in severe tax evasion cases.

The imprisonment term may be imposed on the directors who are responsible for the day-to-day
management of the company. The primary legislation that imposes tax obligations
on companies in Nigeria is the Companies Income Tax Act 2007.

The applicable taxes for businesses under this law are determined by turnover. Large
businesses with a turnover of N100million and above are charged 30% of the profit as tax.

Medium size businesses with an annual turnover margin of over N25million but below
N100milion are charged 20% of the profit margin.

The primary legislation that imposes tax obligations on companies in Nigeria is the Companies
Income Tax Act 2007. The applicable taxes for businesses under this law are determined by
turnover.

Large businesses with a turnover of N100million and above are charged 30% of the profit as
tax. Medium size businesses with an annual turnover margin of over N25million but below
N100milion are charged 20% of the profit margin.

The Federal Government, in a bid to promote the business clime to make it a desirable
investment destination for investors passed into law certain legislations to relax some of these
tax obligations placed on businesses in Nigeria.

Some of these legislations that provide tax exemptions for businesses are examined below.
Exemption from Payment of Companies Income Tax for Small Businesses

The Companies Income Tax Act 2007 is the primary legislation which imposes tax obligations
on businesses in Nigeria. As already examined, this law places a tax obligation ranging from
30% to 20% of the total profit of businesses depending on the annual turnover.

In a bid to promote the ease of doing business in Nigeria, the Finance Act 2019 was passed into
law.

This piece of legislation amended the Companies Income Tax Act to exclude small businesses
with a turnover not exceeding N25million from payment of Companies Income Tax.

Therefore, small businesses with this turnover margin are exempted from payment of
Companies Income Tax in Nigeria. Small businesses in Nigeria are businesses having an
annual turnover which does not exceed N25million.

Exemption from Payment of the Mandatory Tertiary Education Tax

The Tertiary Education Trust Fund (Establishment Etc.,) Act, 2011 places a tax obligation of 2%
of the profit of businesses in Nigeria to be paid as tertiary education tax.

Following the passage into law of the Finance Act 2020 (as amended), small businesses are
again exempted from payment of the mandatory tertiary education tax which is applied by the
government to co-fund tertiary education in Nigeria.

Exemption Under the Pioneer Industry

Businesses operating in an industry designated by law as a pioneer industry are exempted from
payment of tax for their formative years. This is to enable these businesses reinvest their profit
to develop such pioneer industry.

Nigeria currently has approximately 71 (seventy-one) pioneer industries. Some of these pioneer
industries include agriculture, mining and quarrying, manufacturing, electricity and gas supply,
construction, trade, information, and communication.

This resource is useful for businesses exploring the possibility of a tax exemption for businesses
in pioneer industries. The NIPC is the government agency saddled with the responsibility of
granting this tax exemption to businesses.

The pioneer industry tax exemption is only applicable for a period of (5) five years through the
grant of an initial period of 3 (three) years with a 1 (one) year renewal and another 1 (one) year
additional renewal.

Exemption from Payment of the Industrial Training Fund Tax

The Business Facilitation Act 2023 (“Act”) which, just like the name suggests was enacted to
promote the ease of doing business in Nigeria, equally has embedded in it, various tax
exemptions for businesses.
The Industrial Training Fund Act, 2011, places a tax obligation of 1% of the annual payroll of a
business to be paid as the industrial training fund tax for businesses with 5 (five) or more
employees. However, the Act has now relaxed this obligation by exempting businesses with
less than 25 (employees) from payment of this tax.

Therefore, this tax is only applicable to businesses with 25 (twenty-five) employees and more.

Exemption for Businesses Operating in the Free Trade Zones

The free zone is any geographical designated area deemed to be outside the customs territory
within which national regulations as to production, trade and other economic activities partially
applies or may not apply at all. In other countries, it is usually designated as Special Economic
Zone, Industrial Development Zone, Export Processing Zone, Enterprise Zone, and Foreign
Trade Zone.

A Free Trade Zone can be operated by the public or private sector or a combination of both the
public and private sector as a public private partnership (PPP).

Nigeria currently has an estimated 42 (forty-two) free zones spread across the country which
includes the Calabar Free Trade Zone, Lekki Free Zone, Kano Free Zone and Lagos Free
Trade Zone.

In Nigeria, just as it is applicable in other countries, businesses operating in the free zone are
exempted from payment of the mandatory companies’ income tax and other applicable taxes.

In addition, businesses are equally granted duty free importation of raw materials, waiver on all
import and export duties and the ability to repatriate all its capital and profit to a foreign
destination.

Conclusion

There are several applicable tax exemptions in Nigeria which makes Nigeria an attractive
investment destination for foreign businesses and already existing local businesses.

These exemptions, if properly harnessed by businesses could provide a leeway for businesses
to trade and maximize profit.

ROLE OF CITN IN TAXATION DEVELOPMENT

1. The main purpose of CITN is to promote tax research in Nigeria and to equip its
members with the right knowledge and skills to become Tax Administrators and
Practitioners.

2. The organization provides education and training, conducts research, and collaborates
with other organizations to promote taxation in Nigeria.

3. To raise, maintain and regulate the standard of taxation practice amongst its members.
 4. To promote professional ethics and efficiency in tax administration and practice.

5. To encourage, promote and co-ordinate research for the advancement of taxation

practice and administration in Nigeria.

CHAPTER THREE

THE DETERMINATION OF RESIDENCE

MEANING OF RESIDENCE

A person is considered resident if one is physically in Nigeria for at least 183 days (including
leave and temporary absence) in any 12-month period.

An individual is tax-resident in Nigeria throughout an assessment year if that individual: (i) is

domiciled in Nigeria;

(ii) sojourns in Nigeria for a period or periods, in all, amounting to an aggregate of 183 days or
more in a 12-month period (inclusive of annual leave or temporary period of absence)

NON RESIDENT

Imagine a person who lives in Mkpat Enin, but works in Uyo. That person would have to file two
state tax returns: one for the state of residence (Mkpat Enin), and one for Uyo, where they earn
income. Or, consider someone with a home in New York, and a summer home in Florida.
 RESIDENCE IN RELATION TO EARNED INCOME

An individual who has earned income in Nigeria for a year of assessment (other than from an
employment or a pension) shall be deemed to be resident for that year in the territory in which
he had a place or principal place of residence on the first day of the assessment year (1st
January).

Examples of income that isn’t considered earned include government benefits such as
payments from the Temporary Assistance for Needy Families program, unemployment
payments, workers’ compensation payments, and Social Security.

RESIDENCE IN RELATION TO UNEARNED INCOME

With regard to an individual with an unearned income, the place or principal place of residence
is determined by identifying where the individual's place or principal place of residence is
located on the 1st day of January of the year when he earned such unearned income.

Similarly, a person who rents out a property and earns rental income without actively managing
the property can also be considered to be earning unearned income. Inheritance money
received by an heir is another example of unearned income.

RESIDENCE IN RELATION TO NIGERIAN EMPLOYMENT

An individual is deemed a resident in Nigeria if the individual exercises the duties of his
employment in Nigeria.

In Nigeria, the link between employment and place of residence is significant, particularly for tax
liability. An individual is considered resident for tax purposes if they are physically in Nigeria for
at least 183 days in a 12-month period, or if they are a diplomat or diplomatic agent of Nigeria
abroad. This residency status affects their tax obligations, regardless of whether they are
employed or self-employed, or where they work in Nigeria. :

 Tax Residency:

A person's place of residence in Nigeria is the primary factor determining their liability to pay
income tax. If they meet the residency criteria, they are subject to Nigerian income tax on their
global income, while non-residents are taxed only on income sourced within Nigeria.

 Impact on Employment:

An individual's place of residence is crucial for determining their tax obligations if they are
employed in Nigeria, even if they work remotely or are based in a different location.

 Self-Employment:

The place of residence also affects the tax liabilities of self-employed individuals, as they are
taxed on income generated within Nigeria, regardless of their physical location.

 Unearned Income:
 Even without an earned income source in Nigeria, an individual may be considered a resident
if they have unearned income (like dividends or rental income) in Nigeria. The place where the
unearned income arises, if they have no other place of residence, also determines residency.

 Expatriate Employees:
Foreign workers employed in Nigeria are also subject to the same tax residency rules. They
must obtain a Certificate of Expatriate Resident Permit and Registration (CERPAC) to legally
work in Nigeria.

RESIDENCE IN RELATION TO NIGERIAN PENSION

Retirees with just pension income are not liable to pay taxes. However, if such a retiree has
additional sources of income, such as interest, dividends, rental income, capital gains, or
royalties, they may be required to pay taxes on that extra income

Social Security/Nigerian Pension Scheme Taxable income is assessed to tax at graduated rates
ranging from 7 percent to 24 percent, depending on the income band being assessed. Non-
residents are subject to the same tax rates as residents. The maximum tax rate is currently 24
percent of an individual's income.

PRINCIPAL PLACE OF RESIDENCE

A "principal place of residence" (also known as a "principal private residence" or PPOR) is the primary
home where you live and where you intend to live long-term. It's the place you consider your true, fixed,
and permanent home.

Here's a more detailed explanation:

 Primary Residence:
The term refers to the house or apartment where you primarily live and maintain your belongings.
 Long-Term Intention:
It signifies the location where you intend to return to whenever you are away.
 Not Just Temporary Stays:
It's distinct from temporary lodging, such as a hotel or a house used for vacations.
 Proof of Residence:
Factors like your personal belongings being there, your mail being delivered there, and your address on
the electoral roll can help establish your PPOR.
 Tax Implications:
The concept of PPOR is relevant in many contexts, including property tax exemptions and capital gains
tax rules.
 Nigerian Context:
In Nigeria, residence is determined based on where you live and not necessarily your citizenship.
 Multiple Residences:
If you have more than one residence, your principal place of residence is the one that you primarily live
in and where your income is earned or you have other sources of income, like a pension, according to
an article on LinkedIn .

OBJECTION AND APPEALS REGARDING PLACE OF RESIDENCE

In the context of a residence-based legal system, an object refers to a legal

challenge or objection to a decision, such as a residence permit or tax
assessment. An appeal is a request to a higher court to review a lower court's
decision or the decision of an administrative body.

 Object:
An objection is a formal protest or challenge to a decision. It can be filed against a decision that
you disagree with, such as a negative decision on your residence permit application or a tax
assessment.
 Appeal:
If an objection is not successful, you can appeal the decision to a higher authority. This is a
formal request for a review of the original decision by a different body, often a court.

Examples in a Residence-Based System:

 Residence Permit:
If your application for a residence permit is denied, you can file an objection with the relevant
authority. If the objection is rejected, you can appeal to the courts.
 Tax Assessment:
If you disagree with a tax assessment related to your property or residence, you can file an
objection. If the objection is denied, you can appeal the decision to a tax tribunal or court.

In essence, the object (objection) is the initial challenge to a decision, while the
appeal is a further step to seek a review of the decision if the initial challenge fails.
In the context of a residence-based legal system, an object refers to a legal
challenge or objection to a decision, such as a residence permit or tax
 assessment. An appeal is a request to a higher court to review a lower court's
decision or the decision of an administrative body like the IND (Immigratie- en
Naturalisatiedienst).

Explanation:

 Object:
An objection is a formal protest or challenge to a decision. It can be filed against a decision that
you disagree with, such as a negative decision on your residence permit application or a tax
assessment.
 Appeal:
If an objection is not successful, you can appeal the decision to a higher authority. This is a
formal request for a review of the original decision by a different body, often a court.

Examples in a Residence-Based System:

 Residence Permit:
If your application for a residence permit is denied, you can file an objection with the relevant
authority. If the objection is rejected, you can appeal to the courts.

 Tax Assessment:
If you disagree with a tax assessment related to your property or residence, you can file an
objection. If the objection is denied, you can appeal the decision to a tax tribunal or court.

In essence, the object (objection) is the initial challenge to a decision, while the appeal is a
further step to seek a review of the decision if the initial challenge fails.

WHEN TO APPEAL
Similarly, Section 30 of the Tax Appeals Tribunal Act reinforces this principle, stating that the
appellant (usually the taxpayer) must prove: That an assessment is excessive, or. That a tax
decision should not have been made or should have been made differently.

If your objection is disallowed or partially disallowed, you can appeal within 30 business days of
the date of the notice of disallowance. You can do this online or at a SARS branch. Your appeal
must include a notice of appeal form, a statement of the grounds for your appeal, and any
supporting documentation.

RESOLUTION OF APPEALS

Tax disputes in Nigeria are primarily resolved by the courts and the Tax Appeal Tribunal.
 CHAPTER FOUR

PERSONAL RELIEFS AND ALLOWANCES

INTRODUCTION

. 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 individual taxpayers in a year of
assessment to reduce the chargeable income of such individuals. Reliefs and Allowances and Tax Exempt
Deductions Reliefs and allowances are deductions available to individual taxpayer under the Personal
Income Tax Act Cap P8 LFN 2004 (as amended) to lighten his tax burden. In addition to the reliefs and
allowances, Personal Income Tax (Amendment) Act, 2004 (as amended), also provides that certain
deductions shall be tax exempted under the sixth schedule to the. Below are the reliefs and allowances
(including tax exempt deductions) available under the law:

(a) Consolidated Relief Allowance (CRA)

CRA is granted at the higher of ₦200,000 or 1% of gross income plus 20% of gross
income.

Gross Emolument means wages, salaries, allowances (including benefits in kind), gratuities,
superannuation and any other income derived solely by reason of employment. Gross Income means
“all incomes from whatever source derived, unless excluded by law”.
Gross income is not limited to cash received. It includes incomes realized in any form, whether money,
property, or services going by the foregoing definition, it is obvious that gross income encompasses all
income of a taxpayer, whether received in cash, in kind or in any form (excluding income specifically
exempted). However, for purpose of CRA computation, Gross income shall be defined as the total
income (excluding Franked investment Income (FII)) of a taxpayer i.e. Earned income plus unearned
income (excluding FII).

Benefits in Kind (BIK) These are expenses incurred by an employer for the benefit of an employee apart
from his salary or allowance. Some BIKs are taxable while some are not. The benefits in kind exempted
from tax are;

i. Reasonable removal expenses, including a temporary substance

allowance where a change in place of employment necessitates a
change in place of residence
ii. Provision of uniforms, overall or protective clothing
iii. Provision of food in any canteen for staff generally

Taxable Benefit in Kind

i. Where the employer provides assets for employee’s benefit. The

employee is taxed with 5% of the cost of the asset or the market
value if cost is unknown
ii. ii. Where employer provides an accommodation for the employee;
the employee is charged with the cost of the premises he enjoyed
from the employer accommodation. iii. Where employer rents or
hires assets for use by employee; the amount of BIK in the hands of
the employee is the annual rent or hire paid

(b) National Housing Fund Contribution The National Housing Fund Act of 1992 provides that a Nigerian
earning an income of N3,000 and above per annum in both the public and the private sectors of the
economy shall contribute 2.5 per cent of his basic monthly salary to the Fund. The employer is to deduct
the contribution from the contribution from the employee’s monthly salary and to the Federal Mortgage
Bank of Nigeria within one month of making the deduction. The Act mandates the Federal Mortgage
Bank of Nigeria to collect, manage and administer the fund. Contributions made to the fund are tax
deductible.

(c) National Health Insurance Scheme The National Health Insurance Scheme (NHIS) was set up by The
National Health Insurance Scheme Act, 1999 for the purpose of providing health insurance which shall
entitled persons insured under the scheme and their dependants the benefits of prescribed good quality
and cost effective health services as set out in the Act. The Act provides that an employer who has a
minimum of ten employees may, together with every person in his employment, pay contribution under
the scheme, at such rate and in such manner as may be determined, from time to time, by the
Governing Council for the Scheme. An employer under the scheme shall cause to be deducted from an
employee’s wages the negotiated amount of any contributions payable by the employee. The
employer’s contributions and the contributions in respect of its employee are to be paid into the
account of a designated health maintenance organization. Contributions to the scheme are tax
deductible.

(d) Life Assurance Premium 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 life or the life of his spouse, or for a contract for a deferred annuity on his own life or the life of his
spouse;

(e) National Pension Scheme. The Pension Reform Act 2004 establishes a uniform contributory pension
scheme for payment of retirement benefits of employees. The scheme applies to all employees in both
the public sector and private sector who are in employment in an organisation in which there are 5 or
more employees. The rate of contribution to the scheme shall be a minimum of 7.5% of employee’s
monthly emolument (i.e. Basic salary, Housing Allowance and Transport Allowance) as contribution for
employer and minimum of 7.5% contribution for employee in both the public and private sector except
the Military in which case a minimum of 12.5% contribution for the employer and a minimum of 2.5%
for the employee. However, contributions made by an employee to the Scheme shall be tax-deductible.
Notwithstanding the foregoing mode of contribution to the scheme. , an employer may agree or elect to
bear the full burden of the Scheme, provided that in such a case the employer’s contribution shall not be
less than 15% of the monthly emoluments of the employee. The Act further provides that in addition to
the rates of contribution highlighted above, employers shall maintain life insurance policy in favour of
the employee for a minimum of three times the annual total emolument of the employee. A new
Pension Reform Bill was signed into law by President Goodluck Jonathan on 1st July, 2014 to replace the
old Pension Reform Act, 2004. The new pension law introduced several key changes including: Increase
in the minimum contribution into the scheme as follows: Employers are now required to contribute a
minimum of 10% of their employees’ monthly emolument and employees are to contribute a minimum
of 8%. A private sector entity would now be subject to the scheme where it has 15 or more
employees. The Act now imposes a 10 years jail term for persons found guilty of misappropriating
pension funds.

(f ) Gratuities Gratuity is money paid to an employee who is retiring or leaving his employer after
several years of service. Gratuity is tax deductible. Rate of Tax and Ascertainment of Tax Liability Having
ascertained the reliefs and allowances claimable, such are deducted from the Total income of the
individual in order to arrive at the Chargeable income to which the graduated tax rates are applied in
order to obtain the tax payable. The graduated rates currently applicable are as follows:

Income to be Taxed Rate of Tax

First ₦300,000 7% Next ₦300,000 11%

Next ₦500,000 15%

Next ₦500,000 19%

 Next ₦1,600,000 21%

Above ₦ 3,200,000 24%

Minimum Tax

Where there is no Chargeable income for an individual or where the tax payable on the Chargeable
income of that individual is less than 1 per centum of his Total income, the individual shall be charged to
tax at the rate of 1 per centum of his Total income. In essence, minimum tax at the rate of 1% of Total
income shall be payable where:

(a) The taxpayer has no taxable income because of large personal reliefs; or

(b) Taxable income produces tax payable lower than minimum tax; or

(c) Earned income does not exceed N300,000

Some allowances and reliefs are not taxable and can be used to reduce taxable income. For
instance, consolidate relief allowance, gratuities, contributions on the approved pension fund,
and premiums on life insurance policy..

CHAPTER FIVE
TAXABBLE INCOMES

SOURCES OF TAXABLE INCOMES

Income sources encompass a wide range of avenues for earning money, including wages and
salaries, business income, investment income, and government benefits, among others. In
essence, any compensation received for labor, investment, or business ventures is considered an
income source.
Here's a more detailed breakdown of common income sources:

1. Earned Income:
 Wages and Salaries:
Compensation received for employment, including hourly wages, fixed salaries, and bonuses.
 Tips and Commissions:
Additional income received for excellent customer service or sales performance.
 Self-Employment Income:
 Profits earned from running a business, freelancing, or providing consulting services.
 Business Income:
Revenue generated from a business, including sales, profits, and any other revenue streams related to the
business.
2. Investment Income:
 Interest Income:
Earnings from interest-bearing accounts like savings accounts, certificates of deposit, and bonds.
 Dividend Income:
Payments received from owning shares of stock in a company.
 Capital Gains:
Profits made from selling assets like stocks, real estate, or other investments.
 Rental Income:
Revenue generated from renting out property, such as houses, apartments, or commercial spaces.
3. Other Income Sources:
 Royalties: Payments received for the use of intellectual property like copyrights, patents, or trademarks.
 Pensions: Regular payments received from retirement accounts.
 Gifts and Inheritances: Money received from family or friends as gifts or through inheritance.
 Government Benefits: Payments from government programs, such as unemployment benefits, social
security, or other social welfare programs.

NON TAXABLE INCOME

Non tax revenue is income that the government earns from sources
other than through taxes. This includes earnings from dividends
from investments in public sector undertakings (PSUs), interest on
loans and fees for various services provided.

Non tax revenues offer a steady and reliable income stream, helping
cover the cost of government services and adding to the
government’s overall revenue.

For example, when people pay for services like telecommunication,

electricity, and broadband provided by the government, these
payments are recognised as non tax revenue, since the government
supports the infrastructure for these services.
Examples of Non Tax Revenue

Examples of non-tax revenue include income from dividends,

interest, profits, fines, fees, and other receipts from government
activities. These can come from regulatory charges, licence fees,
and user fees for publicly provided goods and services.

Different Sources of Non Tax Revenue

Now that you understand non tax revenue definition, let’s have a
look at some of the non tax revenue sources:

 Jobs provided through state public service boards

 Security services for residential properties
 Civil service fees
 Fees for municipal services
 Payments for electricity
 Charges for administrative services
 Revenue from newspapers
 Sale of stationery and similar items

Components of Non Tax Revenue

The following are the different components of non tax revenue:

 Interest

It consists of the interest paid on loans extended to states, Union

Territories, and various entities for purposes such as flood control
and modernisation of police forces.
It also includes interest earned on loans given to Port Trusts, public
sector enterprises (PSEs), and other statutory bodies.

 Examination Fees

These are fees paid by applicants for competitive examinations

conducted by the Union Public Service Commission (UPSC) and Staff
Selection Commission (SSC) to fill vacancies in government offices.

 Petroleum Licence

This is the fee paid to obtain exclusive rights for oil and gas
exploration in specific regions. This fee may include royalties, a
share of profits earned from the contract areas, Petroleum
Exploration License (PEL) fee, or Production Level Payment (PLP).

 Power Supply Fees

Power supply fee refers to the revenue collected by the Central

Electricity Authority (CEA) for supplying power under the Electricity
(Supply) Act.

 Communication Services Fees

It mainly comprises licence fees paid by telecom operators for

spectrum usage to the Department of Telecom (DoT).

 Dividends and Profits

This covers dividends and profits received from PSEs, as well as

surplus transferred from the Reserve Bank of India (RBI).

 Police Services Fees

This involves fees received for providing central police forces to
state governments and other entities. Providing Central Industrial
Police Force (CISF) personnel to safeguard industries is one such
instance.

 Broadcasting Fees

Broadcasting fees include license fees paid by Direct-To-Home (DTH)

operators, commercial FM radio services, commercial TV services,
etc.

 Road and Bridge Usage Fees

This covers revenue collected by toll plazas for the use of bridges,
national highways, etc.

 Sale of Stationery and Gazettes

It includes revenue from the sale of stationery, government

publications, gazettes, etc., which falls under the category
‘Stationery and Printing’.

 Administrative Services Fees

This covers fees received for providing services such as audit,

passport issuance, visa services, etc.

 Defence Services Receipts

This includes payments for services provided by the Canteen Stores

Department (CSD).
Difference Between Tax Revenue and Non Tax Revenue

Tax revenue comes from the income earned by individuals or

entities and the value of goods and services sold or bought. You
must pay a portion of your income and the value of goods or
services as tax.

Non-tax revenue is charged for services provided by the

government. You only pay non-tax revenue when you use these
government services.

The Bottomline

With a comprehensive understanding of non tax revenue, it is quite

evident that the government earns money from many sources
beyond taxes.

CHAPTER SIX
 ALLOWABLE AND DISALLOWABLE DEDUCTIONS

Individual –
Deductions
Deductions for tax purposes are granted if the expenses meet the criteria
for allowable deductions. Allowable deductions are expenses incurred
wholly, exclusively, necessarily, and reasonably in the production of
taxable income

Employment expenses

NHF contributions, National Health Insurance Scheme contributions, life assurance

premiums (including deferred annuities), national pension scheme contributions,
and gratuities are deductible.

Mortgage or other loan interest relating to owner-occupied accommodations is

deductible from employment compensation.

Personal deductions

Healthcare expenses

Medical expenses and insurance premiums are deductible.

Life insurance premiums

Relief for life insurance premiums (including deferred annuities) for the taxpayer
and the taxpayer's spouse is restricted to the actual premium paid to an insurance
company by the individual during the year preceding the year of assessment. In
relation to a deferred annuity product, any portion withdrawn before the end of
five years from the date the premium was paid will be subject to income tax at the
point of withdrawal.

Standard deductions

There is no blanket or standard deduction for expenses.

Personal allowances
Allowance Limit
 Consolidated relief Higher of NGN 200,000 or 1% of gross income plus 20% of gross income *
allowance

As a result of the consolidated relief allowance of at least 21% of gross income, the
top marginal tax rate is 18.96% for income above NGN 20 million as only 79% of
income is taxed at 24%; however, for income below NGN 20 million, the marginal
rate is 19.2%.

* 'Gross income' means income from all sources less all non-taxable income, income
on which no further tax is payable, tax-exempt items listed in paragraph two of the
sixth schedule, and all allowable business expenses and capital allowances.

Business deductions

Examples of deductible business expenses include:

 Interest on money borrowed for business purposes.

 Rent and premium payable on land or buildings occupied for the purpose of
acquiring the income.
 Repairs and maintenance expenses for premises, plant, or machinery used in
generating income.
 Bad debts.
 Subscriptions, provided they relate to the business or profession.

You can determine your AGI by calculating your annual income from wages and other income
sources (gross income), then subtracting certain types of payments, such as student loan
interest, alimony, retirement contributions, or health savings account contributions, you've made
during the year.

ASSIGNMENT

WHAT ARE THE DEDUCTIONS NOT ALLOWED IN ADJUSTED INCOME COMPUTATION

What is adjusted gross income?

Adjusted gross income is a number that the IRS uses as a basis to
help calculate how much you owe in taxes. The IRS defines AGI as
gross income, minus adjustments to that income [0]

You can determine your AGI by calculating your annual income from
wages and other income sources (gross income), then subtracting
certain types of payments, such as student loan interest, alimony,
 retirement contributions, or health savings account contributions,
you've made during the year.
Once you have your adjusted gross income, you can use that
number to determine your taxable income by taking either the
standard deduction or itemizing to further reduce your liability. Your
AGI can also help you figure out which tax credits might be able to
save you money.
How to calculate adjusted gross income
In general, the formula for calculating AGI starts with determining
your gross income. Gross income includes money earned from
most sources:
 Jobs.
 Investments.
 Social Security.
 Retirement income.
 Pensions.
 Businesses.
 Real estate.
 Farms.
 Unemployment.

You can then subtract the following from your gross income:
 Educator expenses (books, supplies, equipment).
 Certain business expenses.
 Deductible HSA contributions.
 Moving expenses for military members.
 Deductible self-employment taxes.
 Contributions to retirement plans (e.g., SEP, SIMPLE) or health
insurance for self-employed people.
 Penalties on early withdrawals of savings.
 Alimony paid.
 Deductible IRA contributions.
 Student loan interest.

FORMAT FOR COMPUTING ADJUSTED GROSS INCOME

CHAPTER SEVEN

BASIS OF ASSESSMENT

Many taxpayers are confused between the Financial Year (FY) and the Assessment Year (AY).
They often tend to treat them as the same, which leads to making mistakes when they file
their income tax returns.

FINANCIAL YEAR

A Financial Year (FY) is the 12-month period between 1 April and 31 March – the accounting
year in which you earn an income.

ASSESSMENT YEAR

The assessment year (AY) is the year that comes after the FY. This is the time in which the
income earned during FY is assessed and taxed. Both FY and AY start on 1 April and end on 31
March. For instance, for FY 2024-25, the assessment year is AY 2025-26.

The assessment year (AY) is the year that comes after the FY. This is the time in which the
income earned during FY is assessed and taxed. Both FY and AY start on 1 April and end on
31 March. For instance, for FY 2024-25, the assessment year is AY 2025-26.

AY and FY for Recent Years

Period Financial Year Assessment Year

1 April 2024 to 31 March 2025 2024-25 2025-26

1 April 2023 to 31 March 2024 2023-24 2024-25

1 April 2022 to 31 March 2023 2022-23 2023-24

1 April 2021 to 31 March 2022 2021-22 2022-23

1 April 2020 to 31 March 2021 2020-21 2021-22

What is the Difference between AY and FY?

From an income tax perspective, Financial Year (FY) is the year in which you earn an income.
Assessment Year (AY) is the year following the financial year in which you have to evaluate the
previous year’s income and pay taxes on it.

For instance, if your financial year is from 1 April 2024 to 31 March 2025, then it is known as FY
2024-25. The assessment year for the money earned during this period would begin after the
financial year ends – that is, from 1 April 2025 to 31 March 2026. Hence, the assessment year
would be AY 2025-26.

BASIS PERIOD

A basis period is the time period for which a sole trader or partnership pays tax each year.
Usually your business's basis period will be the same as its accounting year.

A basis period is the time period for which a sole trader or partnership pays tax each
year.
Usually your business’s basis period will be the same as its accounting year.
In the early years of your business’s life, if you are not preparing accounts to match the tax
year, you will have to work out your profit for basis periods that don’t match your accounting
year, and include those on your tax returns.
This often results in you having to pay tax twice on the same profits - but you will have this
tax refunded if your business ceases to trade or changes its accounting year end.

If you change your business’s accounting year end, or when your business stops trading,
then you will also have to check the basis period rules.

Basis period example:

A business starts trading on 1st January and decides to prepare accounts to 31st
December each year.

 Its first basis period will be 1st January - 5th April, because the first basis period always
ends on the tax year end.
 Its next basis period will be 1st January - 31st December of the same year, because as
the first accounting year is 12 months long, the basis period ends on the same date as
the accounting year.
 Its next basis period will be 1st January - 31st December of the following year, and so
on.
The profits made in the period 1st January - 5th April will be taxed in both the January -
April and the January - December basis periods during the first accounting year.

ASSESSABLE INCOME

Assessable income is income that you pay tax on, if you earn enough to
exceed the tax-free threshold. Examples of assessable income you must
declare include: salary and wages. tips, gratuities and other payments for your
services.
Most of the income you earn will be assessable income. Assessable income is income that you
pay tax on, if you earn enough to exceed the tax-free threshold. Examples of assessable
income you must declare include:

 salary and wages

 tips, gratuities and other payments for your services
 some allowances, such as for clothing and laundry
 interest from bank accounts
 dividends and other income from investments
 bonuses and overtime an employee receives
 commission a salesperson receives
 pensions
 rent.

You may also receive some income in the form of goods or services instead of money. You
need to declare the market value of these goods or services as assessable income in your tax
return. For example, you may receive clothing, makeup, tools, or accessories from subscribers
or fans of your online platforms, or businesses looking to work with you.

If you receive your income as cash including cash cheques, you must declare the cash as
income in your tax return.

Taxable income

Your taxable income is your assessable income minus any allowable deductions. Your taxable
income is used to work out how much tax you need to pay.

Assessable income − allowable deductions = taxable income

Allowable deductions don't directly reduce the amount of tax you pay, they reduce your taxable
income, which in turn reduces the amount of tax you need to pay.

Exempt income

Exempt income is income that you don't pay tax on (that is, it's tax-free). You may still need to
include this income in your tax return for use in other tax calculations.

Examples of exempt income can include:

 some government pensions and payments, including the invalidity pension

 some education payments.

If the only income you receive during an income year is exempt income, you don't have to pay
any income tax on it.

Non-assessable, Non-exempt income

Non-assessable, Non-exempt income amounts are those which you don't include as income in
your tax return. You can't claim a deduction against non-assessable, non-exempt income.

Non-assessable, non-exempt income can include:

 the tax-free component of an employment termination payment (ETP)

 super co-contributions
 income earned by foreign resident workers under the workers scheme
 Certain disaster payments and grants.

DISTINGUISH BETWEEN PRECEEDING YEAR AND ACTUAL YEAR OF ASSESSMENT

The previous year refers to the financial year immediately preceding the assessment year. It is
the year in which the income is earned and expenses are incurred. The assessment year refers
to the year in which the income earned during the previous year is assessed and taxed by the
tax authorities

Sr. Previous Year Assessment Year

No
1 The previous year refers to the The assessment year refers to the year
financial year immediately in which the income earned during the
preceding the assessment year. previous year is assessed and taxed by
It is the year in which the income the tax authorities. It is the year in
is earned and expenses are which the individual or entity files their
incurred. income tax return and settles their tax
liability.
2 The previous year starts on April The assessment year starts immediately
1st and ends on March 31st of after the previous year ends and runs
the following calendar year. It is from April 1st to March 31st of the
the year in which financial subsequent calendar year. It is the year
transactions take place, and in which the income earned during the
income is generated. previous year is evaluated, assessed,
and taxed.
3 The previous year is relevant for The assessment year is when the tax
determining the taxable income authorities review and assess the
and calculating the tax liability. income earned during the previous year.
Income and expenses incurred It is the year when the taxpayer files
during the previous year are their income tax return, provides
taken into account for tax supporting documentation, and settles
purposes. their tax liability.
4 The previous year is crucial for The assessment year is significant for
maintaining financial records, tax compliance, as taxpayers are
preparing financial statements, required to file their income tax returns
and analyzing the financial and fulfill their tax obligations for the
performance of individuals and income earned during the previous year.
businesses.
5 Examples of the previous year Examples of the assessment year
include: From April 1, 2021, to include: From April 1, 2022, to March 31,
March 31, 2022. It is the year in 2023. It is the year in which the income
which financial transactions, earned during the previous year is
income, and expenses occur. assessed, and tax returns are filed.
6 The previous year is relevant for The assessment year is significant for
individuals, businesses, and individuals, businesses, and entities to
entities to maintain their fulfill their tax obligations, accurately
financial records, track income report their income, and settle their tax
and expenses, and ensure liability based on the assessment of the
compliance with accounting and previous year's income.
reporting standards.