KRA reveals how workers can get end-of-service payment tax-free

The Kenya Revenue Authority (KRA) has outlined the conditions under which employees can receive a tax-free end-of-service payment, or gratuity, as per the Finance Act 2026. In a recent announcement, KRA explained that employees who have worked for their employer for at least three continuous years, or where the employment contract is an extension of a three-year contract, may be eligible for this tax exemption.

KRA emphasized that the gratuity payment must not exceed 31 percent of the employee's earnings during the qualifying period of service. According to KRA's clarification, gratuity is a payment given by an employer at the conclusion of an employee's contract or period of service, distinct from the employee's regular monthly salary, which is usually granted in accordance with the employment agreement's terms.

The two conditions required for the tax exemption to apply are: first, the employment contract must run for at least three continuous years, or extend from a three-year contract; second, the gratuity payment should not surpass 31 percent of the employee's earnings during the qualifying period.

KRA stressed that for employees who have fulfilled both conditions, they can enjoy the gratuity payment without incurring taxes, provided the payment does not exceed the specified percentage of their earnings. The authority encourages employees to understand the terms of their employment benefits and the tax implications of payments received upon contract termination.

This explanation provides clarity to workers who may have been uncertain about whether end-of-service payments are automatically taxable or eligible for an exemption under the new legislation.