InfoHubKenya

Kenya Government

Tax-Free Employment Benefits in Kenya: Current PAYE Rules

By Updated 2 min read

Fact-checked on

In this article
  1. Benefits and exemptions to check
  2. Gratuity: use the current rule and earning period
  3. Deductions are a separate calculation
  4. Sources and useful links

Some employment benefits are excluded from taxable pay, while other payments qualify for a deduction or tax relief. These are different treatments: calling everything a “tax-free benefit” can produce the wrong PAYE calculation.

This guide was checked on 3 November 2026. Apply the rules for the relevant earning period and retain the documents supporting each exemption.

Benefits and exemptions to check

Item Current KRA guidance and important condition
General non-cash benefits KRA’s amendment notice excludes a benefit, advantage or facility where the aggregate value is less than KSh 60,000 a year. This is not an extra tax-free cash salary allowance.
Employer-provided meals The first KSh 60,000 a year, equivalent to KSh 5,000 a month, is excluded under the published rule.
Employer medical cover KRA lists employer medical cover as not chargeable to PAYE. Check the applicable employment/director conditions; a cash allowance is not automatically treated identically.
Employer pension contributions KRA’s PAYE guidance applies scheme, employer-status and contribution-limit conditions, including the KSh 30,000 monthly / KSh 360,000 annual limit. Do not treat every contribution to any fund as exempt.
Disability income exemption KRA gives KSh 150,000 a month / KSh 1.8 million a year, for an eligible person holding the required valid tax-exemption certificate. Disability registration alone is not the tax certificate.

Gratuity: use the current rule and earning period

KRA’s Finance Act 2026 explanation says gratuity qualifies for exemption where the service contract lasts at least three continuous years, or is an extension of a three-year contract, and the gratuity is no more than 31% of emoluments earned during that period.

Earlier-period gratuity has separate transitional treatment. KRA’s 2025 notice explains that amounts earned before 1 July 2025 can remain taxable even if paid later. Ask payroll to identify the earning period and applicable provision; do not apply the 2026 summary retrospectively without checking.

Deductions are a separate calculation

Employee contributions to a qualifying retirement fund, SHIF and the Affordable Housing Levy may reduce taxable pay under their applicable rules. A deduction is not an exemption for an unrelated benefit or a refund of the entire contribution.

Tip: Give payroll the relevant certificates and contribution records. Ask for a breakdown showing taxable benefits, exclusions, deductions and reliefs separately, especially for gratuity spanning several years.

Leave a Reply

Your email address will not be published. Required fields are marked *