- What is PAYE?
- Main Characteristics
- Exemptions and Reliefs
- Calculation and withholding of tax
- Method of calculating chargeable income and tax to be withheld
Pay As You Earn (PAYE) is a system whereby employers are required to withhold tax from the emoluments of employees chargeable to tax at the time the emoluments are received by or made available to the employees. The tax withheld is then remitted to the Mauritius Revenue Authority (MRA) every month.
A new cumulative PAYE System has been introduced as from 1 July 2006 to replace the non-cumulative system. This new system aims at ensuring that the amount of tax withheld under PAYE for each month in a year corresponds exactly to the amount of tax payable on total emoluments derived in that year.
The main characteristics of the cumulative PAYE system are:
- Employees drawing monthly emoluments not exceeding Rs 20,800 are not affected by PAYE.
- Workers receiving their pay daily after each day’s work are excluded from the operation of the PAYE system.
- The PAYE system operates on the pay for the current period at the time the emoluments are received by or made available to the employee.
- The amount of tax to be withheld from the emoluments of each pay period is calculated on a cumulative basis by cumulating both the emoluments and the Exemptions and Reliefs pertaining to the current and previous pay periods in the income year concerned.
Employees have to furnish every year to their employer a PAYE Employee Declaration Form (EDF) claiming the Exemptions and Reliefs to which they are entitled in an income year. An individual is entitled to Exemptions and Reliefs as follows :
Category Amount (Rs) Category A- An individual with no dependent 275,000 Category B- An individual with one dependent 385,000 Category C- An individual with two dependents 445,000 Category D- An individual with three dependents 485,000 Category E- A retired / disabled person with no dependent 325,000 Category F- A retired / disabled person with one dependent 435,000
An individual is not entitled to claim an income exemption threshold in respect of :
- Category B or Category F, where the total income of the dependent exceeds Rs 110,000;
- Category C, where the total income of his second dependent exceeds Rs 60,000;
- Category D, where the total income of the third dependent exceeds Rs 40,000.
If a person claims in an income year, an income exemption threshold in respect of Category B, Category C, Category D or Category F, the spouse of that individual can claim in that income year an income exemption threshold only in respect of Category A or Category E whichever is applicable.
"Dependent" means either a spouse, a child under the age of 18 or a child over the age of 18 and who is pursuing full time education or training or who cannot earn a living because of physical or mental disability.
- an unmarried child, stepchild or adopted child of a person;
- an unmarried child whose guardianship or custody is entrusted to the person by virtue of any other enactment or of an order of a court of competent jurisdiction;
- an unmarried child placed in foster care of the person by virtue of an order of a court of competent jurisdiction.
"Retired person" means a person who attains the age of 60 at any time prior to the first day of January of an income year and who, during that period, is not in receipt of any business income or emoluments other than retirement pension.
Additional exemption in respect of dependent child persuing undergraduate course
- Where a person has claimed an Income Exemption Threshosld in respect of category B, C, D or F and the dependent is a child persuing a non-sponsored full-time undergraduate course at a recognised tertiary educational institution, the person may claim an additional exemption in respect of that child as follows:
- Rs 80,000 - Where a child is persuing his undergraduate course in Mauritius at an institution recognised by the Tertiary Education Commision; or
- Rs 125,000 - Where a child is persuing undergraduate course outside Mauritius at a recognised institution.
- The additional exemption is not allowable:
- in respect of more than three children;
- in respect of the same child for more than 3 consecutive years;
- where the tuition fees, excluding administration and student union fees are less than Rs 44,500;
- to a person whose total income (net income plus interest and dividends received) for the income year ending 31 December 2011 exceeds Rs 2 million.
Interest Relief on secured housing loan
- A person who has contracted a housing loan, which is secured by a mortgage or fixed charge on immovable property and which is exclusively for the purchase or construction of his first house, may claim a relief in respect of the interest paid on the loan.
- The relief to be claimed in the EDF is the amount of interest payable in the income year ending 31 December 2012 or Rs 120,000, whichever is lesser.In the case of a couple where neither spouse is a dependent spouse, the relief may be claimed by either spouse or at their option, divide the claim equally between them provided thet the claim does not, in the aggregate, exceeds Rs 120,000.
- The loan must have been contracted on or after 1stjuly 2006 from a bank, a non-bank deposit taking institution or an insurance company.
- The relief is not allowable where the person or his spouse:
- is, at the time the loan is contracted, already the owner of a residential building;
- derives in the income year ending 31st December 2011, total income (net income plus interest and dividend received) exceeding Rs 2 million;
- has benefitted from any new housing scheme set up on or after 1st January 2011 by a prescribed competent authority.
- The relief is allowable for 5 consecutive years only as from January 2011.
- Relief for Medical Health Insurance Premium :
A person may claim relief for premium payable in respect of medical or health insurance policy contracted for himself or his dependent in respect of whom Exemption Threashold has been claimed. The relief is limited to the amount of premium payable for the income year up to a maximum of :
- Rs 12000 for self ;
- Rs 12000 for first dependent;
- Rs 6000 for second dependent;
- Rs 6000 for third dependent.
- Threshold claimed by an employee in his EDF to calculate the amount of tax to be withheld under the system.
- Arrears of emoluments earned in an income year but received by a person in the following or any subsequent income year will be deemed to have been earned in the income year in which they are received.
Every employer should, at the time emoluments are received by or made available to his employees, withhold tax from those emoluments by reference to the chargeable income of the employees.
Refer to Guide on Pay As You Earn
The amount of tax to be withheld should be in whole rupees. Cents should be left out.
The method to calculate the chargeable income and arrive at the amount of tax, if any, to be withheld by the employer from the emoluments of his employees is described below:
1. Where the employee is paid monthly, the amount of tax to be withheld for the first month of the income year, i.e. January, is calculated as follows:
- Deduct 1/13 of the Exemptions and Reliefs claimed in the EDF from the total emoluments to obtain the chargeable income for the month of January;
- Apply the rate of 15 per cent on the chargeable income calculated at "1". This sum represents the tax to be withheld for January.
2. For calculating the amount of tax to be withheld in any of the subsequent months i.e. February to December, the following steps should be followed:
- Aggregate the emoluments derived for period starting 1 January of the income year up to and including the current month’s emoluments on which tax has to be calculated (say May);
- Aggregate the fractions of Exemptions and Reliefs allowable for the months of January to May; (1/13 x 5 i.e. 5/13 of Exemptions and Reliefs as per EDF)
- Calculate the difference between the results at "1" and "2" above to arrive at the chargeable income (cumulative chargeable income) for that period;
- Apply to the result at "3" above the rate of 15 %.This will represent the total tax required to be withheld for the months of January to May (cumulative PAYE for that period);
- Deduct from the sum arrived at "4" above the total amount of tax already withheld in the preceding months of the income year to arrive at the amount of tax to be withheld for the month of May;
The same principle as described above for withholding tax under the new Cumulative PAYE system will apply to fortnightly paid or weekly paid employees, except that in such cases the fraction of Exemptions and Reliefs (claimed by the employee in his EDF) to be taken into account in respect of each pay period will be 1/28 and 1/56 respectively.