Insurance relief is one of the few ways an employee can lower their PAYE directly, yet many people never claim it. If you pay premiums on a life, education or health policy, you may be able to deduct part of the cost from the tax you owe. Here is how it works and how to claim it properly.

What the relief is

Insurance relief is a credit against your PAYE, not a deduction from your income. It equals 15% of the premiums you pay, up to a maximum of KES 5,000 a month, which is KES 60,000 a year. Because it is applied after the tax bands, every shilling of relief reduces your tax by a shilling.

What qualifies

  • Life insurance and endowment policies
  • Education policies for your children
  • Health insurance policies, including those that cover your family

The policy must be with an insurer licensed in Kenya, and the premium must be paid by you. Premiums paid by your employer do not give you relief, because you have not paid them. Since SHIF became deductible before PAYE from 27 December 2024, SHIF contributions no longer earn insurance relief; see SHIF contributions explained.

A worked example

Suppose you pay a life insurance premium of KES 8,000 a month. Fifteen percent of 8,000 is KES 1,200, so your PAYE falls by KES 1,200 every month, or KES 14,400 over the year. If you pay KES 40,000 a month in premiums, 15% would be KES 6,000, but the limit caps the relief at KES 5,000. Try your own figures in the tax reliefs calculator.

How to get the relief

There are two routes:

  1. Through your employer. Give your payroll officer a copy of your premium certificate or a letter from the insurer showing the premium and the policy holder. The employer applies the relief each month.
  2. Through your annual return. If your employer did not apply it, claim it when you file your return on iTax, with the certificate attached. Use your P9 to confirm what was already claimed; see filing your employment return with a P9.

Paperwork to keep

Keep the policy schedule, the premium receipts or bank statements and the insurer's annual certificate. KRA may ask for them, and you will need them if you claim through your return. Store them with your other records; the tax records checklist and document log shows what to keep and where it is filed.

Common mistakes

  • Claiming for a policy that is paid by your employer.
  • Claiming more than the KES 5,000 monthly limit.
  • Forgetting to give the employer the certificate when the policy is renewed.
  • Claiming SHIF as insurance relief after it became deductible.

Check the effect

Run your salary through the PAYE calculator with and without the relief to see the difference. Employers can include the relief in the monthly payroll workbook, which has a column for insurance premiums. For the wider picture of how the relief fits in, read how PAYE is calculated.

Insurance relief is one of several reliefs. See mortgage interest relief for homeowners for the home loan deduction and pension contributions and tax relief for employees for the retirement deduction. Employers can record premium certificates in the employee records register, and you can check how all the reliefs combine in the annual return estimator.

Rules and limits are set by the Income Tax Act and can change. Confirm the current position with KRA.