- 20 Marks
Question
Dr. Alade Ogungbemi retired from the service of Oyo State Government after attaining 60 years of age on July 31, 2017. He secured an employment with TUC Foods Limited as human resources manager, effective August 1, 2017.
The following details were provided:
- Salary: January 1 – July 31, 2017: N420,000 per month
- New employment: N4,800,000 per annum
- Pension income, effective August 1, 2017: N840,000 per annum
- Transport allowance (new employment): N120,000 per annum
- Rent allowance (new employment): N720,000 per annum
- Contributions to national housing fund and contributory pension fund scheme at 2½% and 7½% of gross income, respectively
- Rental income received (gross):
- July 19, 2015: N240,000
- December 1, 2015: N120,000
- July 4, 2016: N360,000
- December 4, 2016: N420,000
- Dr. Ogungbemi is married and has four children. All except one, aged 20 years, are still in school.
- Dr. Ogungbemi has a life assurance policy with a sum assured of N7,500,000 and an annual premium of N460,000. His aged parents live with him, and neither of them has an income.
Required:
Compute the personal income tax payable by Dr. Ogungbemi for the relevant year of assessment.
Answer
Computation of Personal Income Tax Payable for 2017 Tax Year
Earned Income:
- Income from Public Service (Oyo State Government) (January 1, 2017 – July 31, 2017)
N420,000 × 7 months = N2,940,000 - Income from TUC Foods Limited (August 1, 2017 – December 31, 2017)
N4,800,000 × (5/12) = N2,000,000 - Transport Allowance
N120,000 × (5/12) = N50,000 - Rent Allowance
N720,000 × (5/12) = N300,000 - Gross Emoluments
N2,940,000 + N2,000,000 + N50,000 + N300,000 = N5,290,000
Unearned Income:
- Rental Income (gross)
- July 4, 2016: N360,000
- December 4, 2016: N420,000
Total Rental Income = N780,000
Total Gross Income = N5,290,000 + N780,000 = N6,070,000
Consolidated Relief Allowance:
Higher of 1% of Gross Income or N200,000 + 20% of Gross Income:
- 1% of N6,070,000 = N60,700
- N200,000 + (20% of N6,070,000) = N1,414,000
- N200,000 = N1,214000
Consolidated Relief = N4,656,000
Tax Exempt Items:
- Contribution to Pension Fund Scheme (7.5% of N6,070,000) = N455,250
- Contribution to National Housing Fund (2.5% of N6,070,000) = N151,750
- Life Assurance Premium = N460,000
Total Tax Exempt Items = N1,067,000
Chargeable Income:
Gross Income – Consolidated Relief Allowance – Tax Exempt Items =
N6,070,000 – N1,414,000 – N1,067,000 = N3,589,000
Computation of Personal Income Tax:
Using the tax table for taxable income:
| Income Bracket (N) | Rate (%) | Tax (N) |
|---|---|---|
| First N300,000 | 7% | N21,000 |
| Next N300,000 | 11% | N33,000 |
| Next N500,000 | 15% | N75,000 |
| Next N500,000 | 19% | N95,000 |
| Next N1,600,000 | 21% | N336,000 |
| Remaining N389,000 | 24% | N93,360 |
| Total Tax Payable | N653,360 |
- Tags: chargeable income, Gross Income, Personal income tax, PIT Computation, Tax Relief
- Level: Level 2
- Topic: Personal Income Tax
- Series: NOV 2018
- Uploader: Kwame Aikins