If you paid income tax last year and you are not purely an employee, you owe a quarterly instalment on or before 15 August 2026. Nobody will send you a bill. You work out the number yourself and pay it.
This is a guide to the first quarterly instalment for the Year of Assessment 2026/2027, the quarter running April to June 2026. It follows IRD Circular SEC/2026/E/06, issued 3 August 2026 in compliance with subsection (3) of Section 90 of the Inland Revenue Act No. 24 of 2017, as amended by the Inland Revenue (Amendment) Act No. 11 of 2026. The circular applies to 2026/2027 and subsequent years of assessment, so the method here does not change next year, only the dates and figures.
One thing to be clear about from the start: the payment falls in the first quarter, but the amount is not worked out from what you earned in April, May and June. It comes from last year’s tax bill. More on that below.
Who has to pay on 15 August
You are an instalment payer if you had taxable income and your tax is not already being collected at source. In practice that means:
- Sole proprietors and business owners
- Freelancers and consultants
- Professionals in private practice
- Anyone with rent, interest, dividend or foreign income that is not fully covered by withholding
- Employees who also have a side business
Partnerships, companies, trusts and funds are instalment payers too, under the same formula but different rates. This guide sticks to individuals.
Who does not have to pay
The circular is clear on two exemptions, and both matter to a lot of people who assume they owe something.
If your only income is employment income and APIT is being deducted by your employer, you do not make quarterly instalment payments, and you do not file the credit schedule either. Your employer has already handled it.
If you have employment income plus rent or interest income that is subject to AIT, and the AIT deducted is enough to cover the rest of your tax for the year, you are also excused from both the instalments and the credit schedule.
Both of these apply to employees whose APIT is calculated and paid using APIT Table 8. If your side income is bigger than what AIT covers, you are back in the instalment system for the difference.
If you are an employee with a side business, there is a rule in your favour that is easy to miss. Any APIT deducted, or expected to be deducted, by your employer for the year of assessment may be subtracted before you apply the formula below. You are not paying instalments on income your employer is already taxing.
The four dates for 2026/2027
| Instalment | Due on or before |
| 1st | 15 August 2026 |
| 2nd | 15 November 2026 |
| 3rd | 15 February 2027 |
| 4th | 15 May 2027 |
The year of assessment runs 1 April 2026 to 31 March 2027. After the fourth instalment, the balance is settled and the return is filed the following year.
The formula
Section 90(3) gives one formula for every instalment:
Instalment = (A – C) / B
A is the tax payable on your taxable income for the immediately preceding year of assessment. That is the gross tax, before deducting any tax credits. For the 2026/27 instalments, A comes from your 2025/2026 numbers.
B is the number of instalments left in the year, including the one you are paying.
| Instalment | B |
| 1st | 4 |
| 2nd | 3 |
| 3rd | 2 |
| 4th | 1 |
C is the total tax already paid during the year of assessment, before the due date of this instalment. It includes earlier instalments, WHT and AIT credits already withheld or due to be withheld, and any foreign tax credits you are entitled to.
So for 15 August, you take last year’s gross tax, subtract what has already been paid or withheld this year, and divide by four.
Yes, you are paying this year based on last year’s income. That is intentional. In August nobody knows what the year will actually produce, so the law uses the last known figure and squares it up later.
The rates that produce “A”
For the Year of Assessment 2025/2026, an individual gets a personal relief of Rs. 1,800,000, which is Rs. 150,000 a month. Tax applies to what is left.
| Band of taxable income | Rate |
| First Rs. 1,000,000 | 6% |
| Next Rs. 500,000 | 18% |
| Next Rs. 500,000 | 24% |
| Next Rs. 500,000 | 30% |
| Balance | 36% |
One important exception. If your income comes from services rendered in or outside Sri Lanka and you were paid in foreign currency remitted through a bank here, a maximum rate of 15% applies to that income instead of the bands above. The circular’s own Example 4 uses that 15% rate.
A note on this table: the circular itself does not publish the rate card. Its worked example only goes as far as the 24% band, which matches the first three rows exactly. The 30% and 36% bands come from the First Schedule to the Act as amended in 2025. Check the IRD tax chart for 2025/2026 if your income reaches them.
A worked example
This is the circular’s own example, and it is the cleanest way to see the whole thing.
Mr. X runs a hardware shop. His assessable income for 2025/2026 was Rs. 3,800,000.
| Rs. | |
| Total assessable income | 3,800,000 |
| Less personal relief | (1,800,000) |
| Taxable income | 2,000,000 |
| First 1,000,000 at 6% | 60,000 |
| Next 500,000 at 18% | 90,000 |
| Next 500,000 at 24% | 120,000 |
| Total gross tax (this is A) | 270,000 |
He has no withholding tax credits for 2026/2027, so C is zero.
(270,000 – 0) / 4 = 67,500
Mr. X pays Rs. 67,500 on or before 15 August 2026, and the same again in November, February and May unless something changes.
Notice what A is not. It is not last year’s tax after credits, and it is not an estimate of this year’s income. It is the gross tax figure from last year’s computation.
Do not forget “C”
The biggest avoidable mistake is paying the full quarter when tax has already been withheld from you. Before you pay, check for:
- WHT withheld by clients on service fees
- AIT withheld by banks on interest, or by tenants on rent
- Foreign tax credits under Section 80, but only where the foreign tax has already been paid or you reasonably expect to pay it during the year
Those come off before you divide by four. On the flip side, the circular advises you to file a credit schedule in the specified format, because components B and C of the formula have not changed and the IRD needs to see how you arrived at your number.
How to actually pay. The circular does not include payment instructions. It says these will be provided separately as an assistance to taxpayers, so watch the IRD site and notices rather than assuming the process is unchanged.
If last year does not reflect this year
The standard basis above is called Method 1. It applies to almost everyone, and there is a hard rule attached: if you are eligible to use the standard method, you cannot use the alternatives. The alternatives exist for people with no usable previous year, not for people who would simply prefer to pay less.
The alternatives are open to you in two situations: you had no taxable income last year, or you reasonably expect this year’s taxable income to be lower than last year’s.
No taxable income last year and none expected this year. A is treated as zero, so no instalment is due. You must still submit a statement, Form SEC/2026/SA/01 (Attachment 1).
No taxable income last year but income expected this year. This covers losses that have run out and exemptions that have expired, such as a BOI agreement ending. You recalculate last year’s figures while disregarding the losses or exemptions that applied then, and use that as A. Also Attachment 1.
Income last year but a significant drop expected. Losing a major client, a real decline in business, higher expenditure, or withdrawn investments. You recalculate last year’s tax while excluding the gains and profits you do not expect to repeat. This one needs Form SEC/2026/SA/02 (Attachment 2) plus supporting evidence of the lost business or investment.
Newly registered taxpayers. With no previous year to work from, you estimate your taxable income for the current year using current-year rules and rates. Attachment 2 again. This only applies for one year; after that you use the normal method.
Genuinely unable to estimate. If you cannot reasonably calculate A under either alternative, you can write to the Commissioner of the Tax Policy and Legislation Unit explaining the restriction. If approved, you may be allowed to use the new-registration estimate or another reasonable basis.
The submission deadline you might miss
Statements, forms and attachments under this circular normally go to the assessing unit or regional office handling your file before 31 July of the year preceding the first instalment.
For 2026/2027 only, that has been extended to 15 August 2026. Same day as the payment. If you need to file one of these forms, you are down to your last few days.
Changing your mind mid-year
If you start on the standard basis and your projected income for the year turns out lower than last year’s, you are not stuck. Before the end of the year of assessment, you can ask your assessing unit or Regional Office for a revised calculation basis, with supporting evidence. Subject to approval, you can switch to one of the alternative methods.
This is worth knowing in August. Pay the standard amount now rather than guessing low, and apply for a revision when you have real evidence of the drop.
What happens if you underpay or skip it
The circular puts it plainly: any underpayment, late payment or non-payment attracts interest and a penalty, calculated on the standard basis. Paying the right total late is not the same as paying on time, and choosing an alternative method you were not entitled to leaves you exposed to interest on the shortfall.
Two more situations worth a line
Foreign tax credits. You can take them into account when estimating A, but only if the foreign tax has already been paid or you reasonably expect to pay it during the year. An intention is not a credit.
A different accounting year. If the Commissioner General has approved an alternative twelve-month accounting period for you, everything above still applies without change.
FAQs
Anyone with taxable income that is not fully collected at source: business owners, freelancers, professionals, and people with rent, interest or foreign income. Employees whose tax is deducted through APIT do not.
On or before 15 August 2026. The remaining three fall on 15 November 2026, 15 February 2027 and 15 May 2027.
(A – C) divided by B. A is last year’s gross tax, C is what has already been paid or withheld this year, and B is the number of instalments left including this one, so 4 for the first payment.
No. Payments on the standard basis need no documentation filed with the Commissioner General. You are advised to file a credit schedule in the specified format.
Estimate your taxable income for the current year using current rules and rates, and submit Form SEC/2026/SA/02. This applies for one year only.
Recalculate last year’s tax excluding the income you do not expect to repeat, and submit Form SEC/2026/SA/02 with evidence of the loss.
The personal relief is Rs. 1,800,000 a year, or Rs. 150,000 a month. Tax applies to taxable income above that.
Interest and a penalty apply, worked out on the standard calculation, whether the payment was short, late or never made.
Your 15 August checklist
- Confirm you are actually an instalment payer, and not covered by the APIT or AIT exemptions.
- Pull your 2025/2026 computation and find the gross tax figure. That is A.
- Add up WHT, AIT and foreign tax credits already withheld or due this year. That is C.
- Work out (A – C) divided by 4.
- If you need one of the alternative methods, file Attachment 1 or Attachment 2 by 15 August 2026, with evidence where required.
- Pay, and prepare your credit schedule in the specified format.
- Put 15 November, 15 February and 15 May in your calendar now.
General information based on IRD Circular SEC/2026/E/06 dated 3 August 2026 and the Inland Revenue Act No. 24 of 2017 as amended. Not tax advice. Partnerships, companies, trusts and funds follow the same formula but different rates and rules. If your situation is unusual, check with a qualified tax advisor or the assessing unit handling your file.
