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Turnover Tax vs Monthly Rental Income vs Individual Income Tax: which do I file?

A decision guide to KRA's three small-taxpayer regimes with thresholds, worked examples, and switching rules.

AO
by Reviewed by Michael Mwangi 11 min read Updated 26 August 2026Verified 26 Aug 2026

KRA runs three overlapping regimes for small taxpayers. Pick the wrong one and you either overpay or trigger an assessment. This guide walks through how each works, the thresholds set out in the Income Tax Act (Cap. 470) and the Finance Act 2023, and how to switch when your income moves between bands.

Turnover Tax (TOT), 1.5% of gross

  • Who: resident persons with gross business turnover between KES 1 million and KES 25 million per year. Below KES 1m you fall out of TOT and back into graduated income tax. Above KES 25m you must register for VAT and file graduated income tax.
  • Rate: 1.5% of gross monthly sales, per Finance Act 2023 effective 1 July 2023. No deductions.
  • Filing frequency: monthly return, due by the 20th of the following month, paid via PRN under paybill 222222.
  • Excluded income: rental income (goes under MRI), management or professional fees (graduated), income already subject to withholding tax at source.

Worked example: a kiosk with KES 300,000 monthly gross sales pays 1.5% = KES 4,500 in TOT for that month. No expense claim; total tax on the year at that run rate is KES 54,000.

Monthly Rental Income (MRI), 7.5% of gross

  • Who: resident individuals and partnerships earning residential rental income above KES 280,000 and up to KES 15 million per year. Commercial rent is separate and taxed under graduated rules.
  • Rate: 7.5% of gross rent received. No deductions for repairs, mortgage interest, agent fees, or vacancy.
  • Filing frequency: monthly return, due by the 20th of the following month. Nil returns are still required in vacant months.
  • 2024 change: the rate was reduced from 10% to 7.5% under the Finance Act 2023, effective 1 January 2024.

Worked example: a landlord with four flats renting at KES 30,000 each receives KES 120,000 gross monthly. MRI is 7.5% = KES 9,000 per month. Even if the roof needs KES 200,000 of repairs this year, none of it is deductible under MRI.

Individual Income Tax (graduated), 10% to 35%

The default regime. Applies to employment income (via PAYE), professional and consulting fees, business income above the TOT threshold, commercial rent, capital-related income, and everyone who has not opted into TOT or MRI.

  • Bands (annual, 2026): 10% on the first KES 288,000; 25% on the next KES 100,000; 30% on the next KES 5,612,000; 32.5% on the next KES 3,600,000; 35% above KES 9,600,000.
  • Personal relief: KES 28,800 per year (KES 2,400 per month).
  • Filing: annual, due 30 June for the prior calendar year. See our iTax filing walkthrough.
  • Deductions: allowed. Mortgage interest up to KES 360,000, pension contributions up to KES 240,000, insurance relief, and business expenses that are wholly and exclusively incurred in earning the income.

When TOT beats graduated

A simple rule of thumb. TOT is 3% of gross. Graduated income tax at the 30% band on net profit is equivalent to TOT when your net margin is 10% (30% x 10% = 3%). Below 10% margin, graduated is cheaper; above, TOT is cheaper.

  • Retail kiosk, 15% net margin → TOT wins.
  • Consultancy with low costs, 60% net margin → TOT would be a bargain if the income qualified, but consulting fees are excluded from TOT and stay under the graduated regime.
  • Restaurant with tight margins, 5% net → graduated wins; the deductibility of stock, staff, rent, and utilities matters.

How to change regime

  1. Log in to iTax.
  2. Go to Registration then Amend PIN details.
  3. Under Tax Obligations, add or remove the TOT / MRI obligation.
  4. The change takes effect from the first day of the next month.
  5. You cannot switch mid-year for the same income stream; you must complete the current month under the existing regime.

Sources

  1. Income Tax Act, Cap. 470, sections 12C (Turnover Tax) and 6A (Residential Rental Income).
  2. Finance Act 2023, section 5 (MRI rate reduction from 10% to 7.5%).
  3. KRA TOT information page, kra.go.ke, retrieved 26 August 2026.
  4. KRA MRI information page, kra.go.ke, retrieved 26 August 2026.

FAQ

What is Turnover Tax?

Turnover Tax (TOT) is a simplified tax for small traders with gross annual sales between KES 1 million and KES 25 million. Rate is 1.5% of gross monthly sales, filed and paid monthly by the 20th of the following month. It replaces the need to compute profits, deductions, or file the graduated individual return.

Do I have to opt in to TOT, or is it automatic?

It is not automatic. You must apply on iTax under Registration then Add a Tax Obligation, pick Turnover Tax. Once added, all your business income is taxed at 3% of gross for that year; you cannot mix TOT with graduated income tax on the same source.

What is Monthly Rental Income tax?

MRI applies to resident landlords earning above KES 280,000 and up to KES 15 million a year in gross rent. The rate is 7.5% of gross rent, filed and paid monthly by the 20th. It replaced the older 10% rate on 1 January 2024, under the Finance Act 2023.

Can I claim expenses under TOT or MRI?

No. Both are gross-basis. That is the trade-off for a lower rate. If your expenses are heavy (staff, stock, rent), the graduated individual income regime may actually leave you paying less tax despite the higher headline rates.