How to calculate provident fund deductions for 2016/2017?

Please can you show an example of how the employer and employee's provident fund will affect the monthly tax 2021/2022. I still do salaries manually.

For example, let us say your taxable income (which includes salary, rental income, freelance income etc) is R 20 000 per month and you contribute R 1 000 to an RA and R 600 to a provident fund each month.

This means your total retirement contributions for the year are:

(R 1 000 x 12) + (R 600 x 12) 
= R12 000 + R7200
= R19 200 

Your annual taxable income, before deductions, is R 240 000 (R 20 000 x 12 months). This means that you can claim a tax deduction of up to R 66 000 (27.5% of R 240 000). You’re limited to the total of your actual contributions though, so in this case, the amount of R 19 200 can be deducted from your taxable income for the year.

Taxable income = R 240 000
Retirement fund deduction allowed = R 19 200 
R240 000 – R19 200 = R220 800

So, your ‘new’ annual taxable income (after deductions) is R 220 800. This will be the amount used to calculate your tax and not R 240 000.

Please see our blog on Tax and Retirement for more information.