Did you know that you might be entitled to a tax refund from the Kenya Revenue Authority (KRA) if you've overpaid taxes in any of the last five financial years?
Both employed and self-employed individuals can find themselves in a situation where they've paid more income tax than necessary. This can happen for various reasons, such as errors in the pay-as-you-earn system or miscalculations in the self-assessment tax return system.
Being employed means navigating through different income tax rates, and it's not uncommon for your employer to accidentally deduct more from your payslip and forget a deduction, leading to an overpayment of taxes. Similarly, self-employed individuals utilizing the self-assessment tax return system may also find themselves in a situation where they've paid more taxes than required.
The good news is that KRA will return extra payments, and a claim for an Income Tax refund can be made within five years from the date you paid your taxes.
If you've paid too much income tax and have filed your returns, the KRA portal can indicate your eligibility for a refund. But here's the catch – in many cases, you won't be refunded unless you actively make a formal claim.
This article will explore everything you need to know about tax refunds in Kenya and how to claim a refund.
An income tax refund is a reimbursement of excess tax paid or tax paid in error during a specific period. This occurs when the tax liability, the amount of tax you owe, is less than the taxes you've actually paid. When this happens, the KRA portal will show you qualify for a refund, and you can make a claim.
Income tax refunds can arise due to multiple circumstances, including:
Over Deduction of Tax (PAYE) by the Employer: In Kenya, employers use the PAYE system to deduct income tax from employees' salaries and remit to KRA. If your employer withholds more tax than your actual liability and sends it to the authority, KRA will return the excess.
Individuals with Life and Education Insurance Policies: If you have insurance policies covering life (self, spouse, or child) and education policy with a maturity period of at least 10 years and have not received relief for these policies from your employer, you may qualify for a tax refund. You will qualify for relief at the rate of 15% of the premium paid up to a maximum of Ksh60,000/= per year.
Individuals with Mortgage or Home Ownership Plans: If you have mortgage plans or home ownership schemes from registered/designated financial institutions (as listed on the 4th schedule of the Income Tax Act) for owner-occupied property and have not received relief from your employer, you may be eligible for tax refunds. This is because you are entitled to an interest deduction of up to a maximum of Ksh300,000/= per annum.
Exemption on Account of Disability: The Kenyan tax law provides that persons with disabilities who receive an income may qualify for exemption from income tax and any other levies on such income. This exemption applies on the first Ksh150,000/= per month or Ksh1.8 M per annum. If taxes were paid before accounting for these exemptions, you can apply for a refund. However, you must have a tax exemption certificate to qualify for a refund.
Individuals without Personal Relief: An income tax refund can also arise when a taxpayer has not been granted personal relief during the year, and deductions were not made when paying taxes. All citizens and Kenyan residents are granted personal relief of Ksh28,800 per annum or Ksh2,400 per month.
Overpayment of Instalment Taxes: Individuals who make installment tax payments throughout the year may find their actual tax liability is lower than the cumulative payments made. The excess payments can be returned as income tax refunds in such cases.
Withholding Tax: Withholding tax is a prepayment of income tax, often deducted at the source. If the actual tax liability is less than the amount withheld, a refund is issued to the taxpayer.
Advance Tax Credits: Taxpayers who make advance tax payments based on estimated future income may end up overpaying if their actual income is lower. This overpayment can be reimbursed as an income tax refund.
You will know you are eligible for a tax refund if you find a negative figure on the tax computation sheet while filing your tax returns. A negative figure does not indicate a tax owed; instead, it signifies that you are entitled to a tax refund.
Now that you know you qualify for a refund, you should take the following steps to make a claim.
After submitting the application form, you will receive a refund acknowledgment receipt, which you can download for your records. It will have a number that you can use to track and/or follow up on the status of the refund application.
The acknowledgment receipt doesn’t confirm approval or rejection. The refund process will be processed within 90 days, and upon approval or rejection of a claim, you will receive an approval order or rejection order via email.
To ensure a successful process when making a tax refund claim, follow all the guidelines outlined by KRA. Next, ensure to apply for claims via iTax within the designated five-year window from the tax payment date.
Remember, having a refund claim doesn't automatically mean you'll receive it. If you're a first-time claimant, anticipate a pre-payment audit – a step to ensure the validity of your claim.
Finally, you should know that making a false or fraudulent refund claim is a tax offense. If found guilty, a fraudulent/false claim of refund can attract a penalty of an amount equal to two times the amount of the claim. If you are unsure of something, contact KRA or consult a KRA-licensed tax agent.