Installment Tax & Balance of Tax

Installment Tax & Balance of Tax

16 Apr 20261 min read
Contents

By Yvonne Kabui - Associate, Tax

With the April 20th deadline fast approaching, it is important for taxpayers to align their obligations under Section 12 of the Income Tax Act (“ITA”). This provision ensures that businesses and individuals manage their annual tax liabilities in manageable portions throughout the year of income.

By adhering to the installment schedule, taxpayers avoid the heavy burden of a single year-end payment and ensure continuous compliance with the Kenya Revenue Authority (“KRA”).

The main rule

The requirement to pay installment tax applies to any person whose total tax liability for the year is estimated to exceed KES. 40,000.

This rule applies to:

  • Business income: Profitable entities not under the Turnover Tax (“TOT”) regime.
  • Investment income: Taxable interest and other investment streams.
  • Rental income: Landlords not opting for the simplified Monthly Rental Income (“MRI”) tax.

Deadline: 

For taxpayers with a December year- end, two critical deadlines converge this month:

1. Installment tax. 

The installment tax is computed based on 110% of the prior year’s tax liability, split into four equal installments of 25% each:

  • 1st Installment (2026) which is due by April 20th, 2026.
  • 2nd Installment (2026) which is due by June 20th, 2026.
  • 3rd Installment (2026) which is due by September 20th, 2026.
  • 4th Installment (2026) which is due by December 20th, 2026.

2. Balance of Tax (2025): If your actual tax for 2025 exceeded your paid installments, the final balance must be cleared by April 30th, 2026.

Impact of non-compliance

Missing these April deadlines can have significant financial implications for a company's financing strategy:

  • Late payment penalties: A 5% penalty is charged on the unpaid tax, plus monthly interest.
  • Underpayment penalty: If total installments are less than 80% of the actual tax due, a 20% penalty is applied to the shortfall. 

Conclusion

The convergence of the 1st Installment and the Balance of Tax makes April a vital month for tax planning and cash flow management. 

For firms and individuals, clearing these obligations this week is the most effective way to minimize tax burdens and avoid unnecessary penalty costs.

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