Tax Relief on Insurance and Pensions in Kenya (2026)

Relief and deduction are not the same thing

This is the distinction that decides how much money you actually get back, and almost every payroll conversation in Kenya blurs it.

A deduction comes off your pay before PAYE is calculated. It shrinks the income the tax bands are applied to. If you are in the 30% band, every KES 1,000 of deduction saves you KES 300 in tax.

A relief comes off the tax after it has been calculated. It is a straight discount on the bill. Personal relief of KES 2,400 a month is a relief — it does not matter what band you are in, it removes KES 2,400 of tax.

The practical consequence: deductions are worth more to high earners and less to low earners, while reliefs are worth the same to everybody. If you earn KES 45,000 a month your marginal rate is 30%, so a pension contribution buys you 30 cents on the shilling. If you earn KES 900,000 the same contribution buys 35 cents. The insurance relief buys you exactly 15 cents of every premium shilling regardless.

Four things reduce your Kenyan PAYE beyond the automatic statutory deductions, and they split across both categories. Three are deductions — pension contributions, post-retirement medical fund contributions and mortgage interest. One is a relief — insurance relief. If you want to see how the bands themselves work first, start with how PAYE and net pay are calculated.

Insurance relief: 15% of premiums, capped at KES 60,000 a year

Under section 31 of the Income Tax Act, a resident individual is entitled to insurance relief of 15% of the premiums paid, for themselves, a spouse or a child, up to a maximum of KES 60,000 per annum.

Three kinds of policy qualify:

Life policies. Ordinary life cover on yourself, your spouse or your child.
Education policies. These qualify only if the policy has a maturity period of at least ten years. A five-year education savings plan does not qualify, however it is marketed to you.
Health policies. Private medical cover.

Work backwards through the cap and the number that matters becomes obvious. Fifteen percent of what premium hits KES 60,000? KES 400,000 a year, or roughly KES 33,300 a month of premiums. Above that, extra cover buys you no extra relief. Below it, you are getting 15% of everything you pay.

That ceiling is generous relative to what most Kenyan households actually spend on cover, which means for the majority of people the binding constraint is not the cap — it is that they never declared the policy to payroll at all. If you are weighing whether the underlying cover is worth having in the first place, that is a separate question from the tax; whether you need life insurance is worth settling on its own merits before the relief enters the argument.

Why SHIF gets no insurance relief — and why that does not cost you

This one confuses people, because the old rule was different.

From 1 January 2022, NHIF contributions qualified for insurance relief. NHIF no longer exists. KRA has stated plainly that the relief as provided under the Income Tax Act does not apply to contributions made to the SHIF under the Social Health Insurance Act.

If that were the whole story you would be worse off. It is not. The Tax Laws (Amendment) Act 2024 made SHIF contributions an allowable deduction against taxable income instead — section 15(2)(ae) of the Income Tax Act, effective 27 December 2024. So SHIF moved from the relief column to the deduction column.

For anyone in the 30% band, that swap is an improvement: a deduction at 30% beats a relief at 15% on the same shilling. For someone in the 10% band it is worse. Either way, you do not need to do anything — your employer applies it automatically, the same way the Affordable Housing Levy is deducted before PAYE rather than after.

The rule to carry: you cannot claim insurance relief on SHIF. If a payroll clerk or a calculator is giving you relief on your SHIF deduction, the figure is wrong.

Pension contributions: the lowest of three numbers

The pension deduction is the biggest lever most salaried Kenyans have, and it is also the one most often stated incorrectly.

KRA's own guidance sets the ceiling at KES 360,000 per year — KES 30,000 per month — for contributions to a registered pension fund, registered provident fund or registered individual retirement fund. That ceiling rose from KES 240,000 under the Tax Laws (Amendment) Act 2024.

But KES 360,000 is a ceiling, not an entitlement. The deductible amount is the lowest of three figures:

The contributions you actually made during the year;
30% of your pensionable income; and
KES 360,000.

The 30% test is the one that bites in practice. If your pensionable income is KES 80,000 a month, 30% is KES 24,000 — so contributing KES 30,000 gets you a deduction of KES 24,000, not KES 30,000. The extra KES 6,000 still goes into your fund, it just does not reduce your tax. Anyone told to "max out at 30,000 for the tax break" on a modest salary is being told to overpay for a benefit they cannot use.

Your NSSF contribution counts toward this. Under the NSSF Act 2013 the employee side is 6% of pensionable earnings, capped by the KES 108,000 upper limit at KES 6,480 a month — well inside the ceiling, which leaves substantial headroom for a personal or occupational scheme on top. How NSSF actually works covers the tier structure and when you can access the money.

On the way out, the Tax Laws (Amendment) Act 2024 also widened the exemptions. Benefits from a registered scheme are exempt from income tax where the member has reached the retirement age set by the scheme rules, withdraws early on account of ill health, or withdraws after a minimum of twenty years in the scheme. That last condition is new and materially changes the maths of staying in one scheme. Confirm your own position with the Retirement Benefits Authority or KRA before you act on it — scheme rules differ, and the exemption turns on the scheme's own definition of retirement age.

Post-retirement medical fund: KES 15,000 a month

The Tax Laws (Amendment) Act 2024 discontinued the old Post-Retirement Medical Fund Relief and replaced it with a deduction. Contributions to a post-retirement medical fund are now deductible from taxable employment income, limited to KES 15,000 per month.

Note carefully what that limit is attached to. It is a cap on the deductible contribution — KES 15,000 of contribution, deductible in full. Several payroll guides state it as "15% of contributions capped at KES 15,000", which is not what KRA's notice says. The notice caps the contribution amount, not a percentage of it. If your payslip shows 15% of your PRMF contribution being deducted rather than the contribution itself, query it.

This is a genuinely useful vehicle for anyone who expects private medical costs in retirement, since SHA cover in retirement is not the same proposition as employer cover during your working life. It is also money you cannot get back for anything else, which is the trade.

Mortgage interest: KES 360,000 a year

Interest paid on money borrowed to buy, improve or — since the Finance Act 2025 — construct a residential property you occupy is deductible up to KES 360,000 per year, KES 30,000 per month. That ceiling also rose in December 2024, from KES 300,000.

Two conditions catch people out. The borrowing must be from a specified financial institution, so a loan from a relative or an unregulated lender does not qualify however genuine it is. And it must be owner-occupied residential property — a rented-out flat is a different calculation entirely, handled as a cost against rental income rather than a payroll deduction.

Only the interest portion counts, never the capital repayment. Early in a mortgage that distinction favours you, since interest dominates the early instalments. If you are still at the stage of comparing offers, how Kenyan mortgages work sets out the rest of the cost picture.

A worked example: KES 150,000 a month

Take a salary of KES 150,000 gross. The automatic statutory deductions come off first: NSSF KES 6,480 (6% capped at the KES 108,000 upper limit), SHIF at 2.75% of gross is KES 4,125, and the Affordable Housing Levy at 1.5% is KES 2,250. Taxable pay is therefore KES 137,145.

Claiming nothing extra, PAYE runs: 10% of the first 24,000 is 2,400; 25% of the next 8,333 is 2,083; 30% of the remaining 104,812 is 31,444. Gross tax KES 35,927, less personal relief of KES 2,400, gives PAYE of KES 33,527 and take-home of KES 103,618.

Now add a KES 20,000 monthly pension contribution (inside both the 30,000 cap and the 30%-of-pensionable test, since 30% of 150,000 is 45,000), KES 5,000 to a post-retirement medical fund, and KES 10,000 of life and health premiums.

Taxable pay drops by the 25,000 of pension and PRMF to KES 112,145. Gross tax falls to KES 28,427. Take off personal relief of 2,400, then insurance relief of 15% of 10,000 — KES 1,500 — and PAYE is KES 24,527.

The tax saving is exactly KES 9,000 a month, and it decomposes cleanly: KES 25,000 of deductions at the 30% marginal rate is KES 7,500, plus KES 1,500 of insurance relief.

Here is the honest part. Take-home fell from KES 103,618 to KES 77,618 — KES 26,000 less cash in hand. You spent KES 35,000 and the taxman refunded KES 9,000 of it. This is a discount on money you were going to spend anyway, not free money. It is an excellent deal if you genuinely wanted the pension and the cover. It is a bad deal if you are buying a policy purely for the relief. Run your own numbers on the income tax calculator and the retirement calculator before committing to a contribution level you cannot sustain.

What changed on 27 December 2024

The Tax Laws (Amendment) Act 2024 reshaped this whole area in one go, effective 27 December 2024 and applied from the December 2024 payroll onward:

Affordable Housing Levy, SHIF and post-retirement medical fund contributions became allowable deductions.
The pension ceiling rose from KES 240,000 to KES 360,000 a year.
The mortgage interest ceiling rose from KES 300,000 to KES 360,000 a year.
Affordable Housing Relief and Post-Retirement Medical Fund Relief were discontinued — replaced by the deductions above.
Non-cash benefits with an aggregate value under KES 60,000 a year stopped counting as taxable gains from employment, as did the first KES 60,000 a year of employer-provided meals.

The Finance Act 2025 then extended the mortgage deduction to construction, and widened the gratuity exemption. If you are reading a payroll guide that still lists Affordable Housing Relief, it predates all of this and every figure in it should be treated as suspect.

How to actually claim

For employees, these run through payroll — but only if you tell your employer. KRA's guidance to employers is explicit that insurance relief, mortgage interest, pension and post-retirement medical fund contributions are applied where they are declared by the employee and supported by the necessary documentation. Nobody applies them on your behalf by default. Give HR the policy schedule, the mortgage interest certificate from the bank, or the scheme contribution statement, and keep a copy.

Personal relief and the statutory deductions are automatic. Everything else needs a piece of paper from you.

For the self-employed and anyone with side income, there is no payroll to route it through — you claim on your annual return. You will need a KRA PIN and the same supporting documents, entered when you file your return on iTax by 30 June. If you have both a salary and a side hustle, check that a claim already applied through payroll is not also entered on the return; tax on side income covers how the two fit together.

If a policy was mis-sold to you on the strength of a tax benefit that did not exist, the tax position and the insurance claim or complaint route are separate matters — pursue them separately.

Frequently asked questions

Can I claim insurance relief on my SHIF deduction? No. KRA has stated that insurance relief under the Income Tax Act does not apply to SHIF contributions. SHIF is instead an allowable deduction from taxable income, applied automatically by your employer.

My education policy matures in seven years. Does it qualify? No. KRA requires a maturity period of at least ten years for an education policy to attract insurance relief. Check the maturity date on the schedule rather than the sales brochure.

I contribute KES 30,000 a month to a pension but earn KES 70,000. Do I get the full deduction? Not usually. The deduction is the lowest of your actual contributions, 30% of pensionable income, and KES 360,000 a year. On KES 70,000 of pensionable income, 30% is KES 21,000 — so KES 21,000 would be deductible and the balance would not reduce your tax.

Does my mortgage from a SACCO qualify for the interest deduction? Only if the lender is a specified financial institution for the purposes of the Income Tax Act. Ask the lender directly whether it issues mortgage interest certificates for tax purposes — if it does not, assume the deduction is unavailable and confirm the position with the KRA. Choosing a SACCO covers what else to check before borrowing.

Is my pension lump sum tax-free? It depends on the route out. Benefits from a registered scheme are exempt where you reach the retirement age set by the scheme rules, withdraw early on account of ill health, or withdraw after at least twenty years of membership. Outside those conditions, tax may apply. Confirm your specific position with the Retirement Benefits Authority or the KRA before you draw.

I never declared my life policy. Can I claim for past years? Raise it with the KRA. Amended returns are possible within the limits of the Tax Procedures Act, but time limits and documentation requirements apply, so the answer depends on how far back you are going and what evidence you still hold.

Reviewed 5 September 2026 against KRA public notices on PAYE computation and employer obligations, and section 31 of the Income Tax Act. Thresholds and reliefs change with each Finance Act — confirm current figures with the Kenya Revenue Authority before acting. This is general information, not financial advice.