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Installment Tax Filing Guide

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📆 What is Installment Tax?

Installment tax is advance payment of income tax made in four equal installments during the year of income. It applies to companies and individuals whose tax liability exceeds KES 40,000 per year.

💡 Purpose: Installment tax ensures a steady flow of revenue to the government and prevents taxpayers from facing a large tax bill at year-end.

📋 Who Must Pay Installment Tax?

  • All companies (resident and non-resident with PE in Kenya)
  • Individuals with tax liability exceeding KES 40,000
  • Trusts and estates with business income

Exemptions

  • Employees whose only income is employment income (PAYE covers this)
  • Newly registered companies in their first year
  • Companies with tax liability below KES 40,000

📅 Due Dates

Installment tax is paid in four equal installments on the 20th day of:

Installment Due Date For Dec Year-End
1st Installment 20th of 4th month 20th April
2nd Installment 20th of 6th month 20th June
3rd Installment 20th of 9th month 20th September
4th Installment 20th of 12th month 20th December
⚠️ Note: If the 20th falls on a weekend or public holiday, payment is due on the next working day.

🧮 How to Calculate Installment Tax

Method 1: Based on Prior Year Tax (Most Common)

Formula: Prior Year Tax × 110% ÷ 4

Example:

  • 2024 Tax Liability: KES 1,000,000
  • 2025 Estimated Tax: 1,000,000 × 110% = KES 1,100,000
  • Each Installment: 1,100,000 ÷ 4 = KES 275,000

Method 2: Based on Current Year Estimate

Formula: Estimated Current Year Tax ÷ 4

Use this if you expect significantly different results from the prior year.

⚠️ Caution: If your estimate is less than 80% of actual tax, you'll face penalties on the shortfall.

📋 Step-by-Step Filing Guide

1

Calculate Installment Amount

Determine your quarterly payment based on prior year tax or current year estimate.

2

Log in to iTax

Visit itax.kra.go.ke and log in.

3

Navigate to Payments

Click "Payments" → "Payment Registration".

4

Select Tax Type

Choose "Income Tax - Installment Tax" and select the installment period.

5

Enter Payment Amount

Enter the calculated installment amount.

6

Generate PRN

Generate the Payment Registration Number (PRN).

7

Make Payment

Pay via M-Pesa Paybill 572572 using the PRN as account number.

📊 Installment Tax vs Final Tax

Year-End Reconciliation Example:

Actual Tax Liability (2025) KES 1,200,000
Total Installments Paid KES 1,100,000
Less: WHT Credits KES 50,000
Balance Due KES 50,000

The balance is due when filing the annual return (within 6 months of year-end).

⚠️ Penalties

Late Payment

5% of installment due + 1% interest per month

Underestimation Penalty

If total installments paid are less than 80% of actual tax:

20% of the shortfall below 80%

Underestimation Example:

  • Actual Tax: KES 1,000,000
  • 80% Threshold: KES 800,000
  • Installments Paid: KES 600,000
  • Shortfall: 800,000 - 600,000 = KES 200,000
  • Penalty: 200,000 × 20% = KES 40,000

💡 Tips for Managing Installment Tax

  • Set reminders: Mark due dates in your calendar
  • Review quarterly: Adjust estimates if business performance changes significantly
  • Keep records: Maintain payment receipts for reconciliation
  • Plan cash flow: Budget for quarterly payments
  • Consider overpaying: Slight overpayment avoids underestimation penalties

🔗 Related Resources