Well, yes you can!
The last post on savings and today we are talking about savings that are tax relief meaning does not tax on a part of your income based on a saving commitment you have incurred.
So despite the current move by the government net to tax financial services thereby increasing the service cot that eats up on savings, today we shall talk about tax-free saving plans that apply to Kenyan residents.
Let’s explore!
Social savings account
In your country, you can look out for a social security fund. In Kenya, we have The National Social Security Fund that is a Kenyan government agency responsible for the collection, safekeeping, responsible investment and distribution of retirement funds of its citizens.
Here’s the good this its tax relief meaning it is not taxed so setting aside money that is tax-free is a good deal right?
The above image shows a screenshot of how income tax is calculated and as you can see social security contribution is relieved from tax.
Contributions to a registered Home Ownership Savings Plan (HOSP)
Saving part of your income to a registered HOSP not only gives you your own house in the long run but also reduces your tax burden.
The Income Tax Act provides that contributions up to Sh48,000 a year be exempted from tax. In addition, interest earned on deposits of up to Sh3 million in such a scheme are tax-free.
Save in an insurance cover plan
Individuals i.e Kenyan residents are entitled to a tax relief of up to Sh5,000 per month for premiums paid on life insurance policies, education (with a maturity of at least 10 years) or health policies taken out for oneself or next of kin, this combined relief is subject to a maximum of Sh60,000 per year.
So if you are saving Sh60,000 in your ordinary bank account for education or health, you are better off taking an insurance cover.
In addition, all future pay-outs on the policy and any bonuses are not liable for any form of capital gains tax.
Retirement benefit savings schemes
Beyond the mandatory contribution to National Social Security Fund (NSSF), save monthly with a registered pension scheme.
The law provides that savings to such schemes of up to Sh240,000 per year (Sh20,000 per month) or 30% of your salary whichever is less. The income earned from investments is tax-free.
Think of a retirement/pension contribution in your savings plan. It gives you a chance to earn from your savings in old age.
Age gracefully.
Hi,I’m Mary and thanks for that great financial insight. I have a medical cover and just wanted to know how exactly I should go about the same to save on tax as per your article. Do I engage the employer or KRA or what should I do?
Your assistance will be highly appreciated .
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