Updated 18 September 2026. Covers income earned from 1 April 2025 to 31 March 2026.
Two software engineers can earn the same amount and have very different tax responsibilities.
One sees tax deducted from every payslip. Another receives the full payment from an overseas employer and has to pay the tax themselves. A third sends invoices through a company, which has its own tax bill before we even get to the founder’s personal income.
So start with how you work. This guide follows three groups, with a worked example for each. The third group has two examples because invoicing personally and invoicing through a limited company lead to different calculations.
- Employee of a Sri Lankan company: start with Nimal’s salary example.
- Direct employee of a foreign company, working from Sri Lanka: start with Anjali’s remote employment example.
- Independent freelancer, consultant or limited-company owner: start with Ravi’s individual business or Maya’s company example.
All four people are hypothetical. They are Sri Lankan tax residents, and the examples exclude other income, additional reliefs and foreign tax credits unless stated. Every amount is in Sri Lankan rupees. Your employment contract, income sources and payment records determine which example fits.
First check the year and the deadlines
The 2025/26 year of assessment runs from 1 April 2025 to 31 March 2026. It does not follow the calendar year.
For a standard 31 March year end, the final income-tax payment is due on 30 September 2026. The annual return, where required, is due on 30 November 2026. Monthly deductions and quarterly instalments fall earlier; November is not permission to hold all your tax until filing day. See the IRD’s 2026 tax calendar.
Employee of a Sri Lankan company
Nimal earns Rs 300000 a month
Nimal works for a software company in Colombo. His gross salary is Rs 300,000 a month, paid for all 12 months. He has no bonus, taxable benefits, side projects or other income.
His employer deducts Advance Personal Income Tax, usually called APIT, through payroll. It is tax paid towards his annual liability. When he works out his final position, he gives credit for the amount already paid.
For an eligible individual in 2025/26, the annual personal relief is Rs 1,800,000. The ordinary individual rates apply progressively to taxable income after relief. A higher band applies only to the portion in that band. The 2025 amendment sets out these changes.
| Ordinary taxable income after relief | Rate |
| First Rs 1,000,000 | 6% |
| Next Rs 500,000 | 18% |
| Next Rs 500,000 | 24% |
| Next Rs 500,000 | 30% |
| Balance | 36% |
Here is what that means for Nimal.
| Nimal’s annual calculation | Amount |
| Gross salary — Rs 300,000 × 12 | Rs 3,600,000 |
| Less personal relief | Rs 1,800,000 |
| Taxable income | Rs 1,800,000 |
| First Rs 1,000,000 at 6% | Rs 60,000 |
| Next Rs 500,000 at 18% | Rs 90,000 |
| Remaining Rs 300,000 at 24% | Rs 72,000 |
| Total annual income tax | Rs 222,000 |
That is Rs 18,500 a month in this steady-salary example, matching the IRD’s regular employment APIT table. If his employer correctly deducted and paid Rs 222,000, his remaining income-tax balance is zero.
What Nimal needs to do before filing season
Nimal should collect his employer’s T10 certificate, which records employment income and APIT, and compare it with his payslips. If he changed jobs, he needs the records from both employers.
He should then check whether a return is required. Section 94 provides an exception for qualifying individuals whose tax relates exclusively to employment, whose employer deducted APIT, and who have no further tax payable under the relevant provisions. The IRD can still issue a notice requiring a return. See sections 93 and 94 of the Inland Revenue Act.
The 2026 amendment, effective for this provision from 1 April 2025, also extends the exception to qualifying employees with annual interest income not exceeding Rs 5,000.
For someone in Nimal’s position: reconcile the salary and APIT, check the filing exception, and respond to any IRD notice. Having tax deducted does not settle every possible filing question.
If Nimal also builds websites on weekends, his position changes. He needs to consider the business income alongside his salary. And if his Sri Lankan employer earns dollars from overseas clients, that alone does not give his salary the foreign-income concession discussed next.
Direct employee of a foreign company working from Sri Lanka
Anjali earns the equivalent of Rs 500000 a month
Anjali lives in Sri Lanka and is directly employed by a UK company. It has no permanent establishment in Sri Lanka. She performs her work from Sri Lanka, the services are used outside Sri Lanka, and her salary is received in foreign currency and remitted through a bank to Sri Lanka.
Assume the rupee value of her salary is Rs 500,000 each month for the full year. This fixed value keeps the example readable; real calculations need the appropriate currency conversions.
These facts matter because the IRD has a specific APIT Table 8 for qualifying foreign employment. It excludes independent service providers such as freelancers. Anjali must calculate and pay the tax herself under her own TIN and Individual Income Tax registration, by the 15th of the following month. See the IRD’s foreign employment instructions.
How Anjali’s tax works
Qualifying income is subject to a maximum rate of 15%. That does not mean multiplying her entire salary by 15%.
In this example, Anjali receives the personal relief, pays 6% on the first Rs 1 million of taxable income, and 15% on the balance.
| Anjali’s annual calculation | Amount |
| Annual salary — Rs 500,000 × 12 | Rs 6,000,000 |
| Less personal relief | Rs 1,800,000 |
| Taxable income | Rs 4,200,000 |
| First Rs 1,000,000 at 6% | Rs 60,000 |
| Remaining Rs 3,200,000 at 15% | Rs 480,000 |
| Total annual income tax | Rs 540,000 |
Her annual tax is 9% of gross salary under these assumptions. Setting aside money each month helps, but the payment calculation is cumulative from April.
By the end of June, Anjali has earned Rs 1.5 million. By the end of July, she has earned Rs 2 million. Her cumulative July liability is Rs 12,000: 6% of the Rs 200,000 above the relief. With no earlier tax due in this example, she pays Rs 12,000 by 15 August 2025.
By August, cumulative income reaches Rs 2.5 million and cumulative tax reaches Rs 42,000. After subtracting July’s Rs 12,000, the August payment is Rs 30,000. The calculation continues through March.
What Anjali needs to do before filing
She should reconcile her full-year salary and monthly tax payments, prepare her individual return and check for any remaining balance. The payroll filing exception described for Nimal is not something she should assume applies when she paid the tax herself.
Her file should include the employment contract, salary statements, evidence supporting overseas use of the services, bank remittance records, currency conversion workings and tax payment receipts.
For someone in Anjali’s position: first confirm the employment and remittance conditions, then follow the monthly payment process. A foreign employer’s address or a dollar-denominated contract alone is not enough to establish the treatment.
If a payment platform, an overseas account or foreign payroll tax is involved, have the actual arrangement checked. Foreign tax credits depend on eligibility, evidence and limits; an overseas deduction does not automatically cancel the Sri Lankan liability.
Independent freelancer consultant or limited company owner
The first question here is whose name appears on the contract and invoice.
If you invoice personally, you are generally looking at your individual business income. If your limited company contracts with the client, the company earns the revenue. Paying yourself from that company creates a separate personal tax question.
Ravi invoices overseas clients as an individual
Ravi is an independent software consultant. He has no limited company and is not an employee of his clients.
During 2025/26, he earns Rs 7.2 million from overseas projects. He incurs Rs 1.2 million of properly supported, allowable business expenses. Assume all the work qualifies for the service-export treatment: the services are used outside Sri Lanka, payment is in foreign currency, and it is remitted through a bank to Sri Lanka.
His starting point is business profit after allowable deductions.
| Ravi’s annual calculation | Amount |
| Business revenue | Rs 7,200,000 |
| Less allowable business expenses | Rs 1,200,000 |
| Business profit | Rs 6,000,000 |
| Less personal relief | Rs 1,800,000 |
| Taxable income | Rs 4,200,000 |
| First Rs 1,000,000 at 6% | Rs 60,000 |
| Remaining Rs 3,200,000 at 15% | Rs 480,000 |
| Total annual income tax | Rs 540,000 |
This is the same annual tax as Anjali’s example because their income after business deductions, before personal relief, is the same. Their payment procedures differ.
Ravi follows the business-income instalment process. He does not use the foreign-employee Table 8 simply because his clients are abroad.
For 2025/26, quarterly instalments fall on 15 August 2025, 15 November 2025, 15 February 2026 and 15 May 2026. The Statement of Estimated Tax, or SET, requirements for that year also need attention. See the IRD’s 2025/26 SET guide. The removal of SET from 2026/27 under the 2026 amendment does not erase the earlier year’s requirements.
What counts as Ravi’s expenses
A business payment needs a business purpose and supporting records. Personal spending does not become deductible because it came from the same bank account. Equipment can require capital allowances rather than an immediate deduction of the full purchase price. These distinctions come from the deduction rules in the Inland Revenue Act.
Ravi should reconcile invoices to receipts and separately identify platform fees. The net deposit in his account may not tell the whole revenue-and-expense story.
If some clients are local, or some overseas receipts do not meet the concession’s conditions, he must identify those amounts separately. The 15% maximum is conditional. It is not a general freelancer rate. The IRD tax chart explains the qualifying treatment.
For someone in Ravi’s position: prepare a supported profit calculation, identify qualifying income, reconcile instalments and eligible withholding credits, and file the individual return. Keep contracts, invoices, bank records, expense evidence and payment receipts together.
Maya invoices through her own limited company
Maya runs a software consultancy through a Sri Lankan limited company. For this example, all its clients are local and its profits are subject to the standard corporate rate.
The company earns Rs 12 million in revenue. It pays Maya a salary of Rs 300,000 a month and incurs Rs 4.8 million of other costs. Assume the salary and other costs are allowable deductions, properly documented, and no further tax adjustments are needed.
| Maya’s company calculation | Amount |
| Company revenue | Rs 12,000,000 |
| Less other allowable costs | Rs 4,800,000 |
| Less Maya’s annual salary | Rs 3,600,000 |
| Company taxable profit | Rs 3,600,000 |
| Corporate tax at 30% | Rs 1,080,000 |
| Profit remaining after corporate tax | Rs 2,520,000 |
The company does not receive Maya’s Rs 1.8 million personal relief. The standard corporate rate is 30%; qualifying service-export company income can instead fall under a 15% corporate rate where the required conditions are met. See the company rates in the IRD tax chart.
Maya’s personal salary has its own calculation. With no other income or additional reliefs, her Rs 3.6 million salary produces the same Rs 222,000 personal tax as Nimal’s example, handled through the company’s payroll.
The Rs 2.52 million remaining belongs to the company. This example assumes it stays there. If the company distributes dividends, there is a further tax and withholding question; that distribution is not included in these figures.
What Maya needs to do before filing
Maya needs the company’s accounts, tax computation, instalment reconciliation and corporate return, alongside the payroll records for her own salary. Her personal filing position must be checked separately.
For someone in Maya’s position: keep the company’s money, records and tax obligations separate from your own. An individual income-tax calculator cannot replace the company’s tax computation. Incorporation alone does not tell you whether the overall tax cost will be lower.
If you fit more than one group
You might work for a local company and freelance at night. Or spend part of the year employed overseas before returning to Sri Lanka.
In that situation, use the examples to understand each income stream, then calculate your actual position together. You do not receive a fresh Rs 1.8 million personal relief for each job or client. Mixed ordinary-rate and concessionary income also needs the correct allocation of reliefs and tax bands.
Residency, employee shares or options, overseas tax deductions and unusual payment routes deserve a closer look. Record them before calculating. The IRD individual return guide includes the relevant schedules and mixed-income workings.
Turn your example into your own calculation
Gather your actual figures for April 2025 through March 2026. Then work through revenue or salary, allowable deductions where relevant, reliefs, tax and payments already made.
For personal income tax, the Simplebooks income-tax filing tool can help you work through your income details and get a free computation. Review the breakdown against your records before proceeding. Paid filing support includes expert review. If you invoice through a limited company, arrange a separate company tax review as well.
The number to check is the remaining balance after eligible credits and tax already paid. A computed annual liability is not automatically the amount you still owe.
A practical checklist before you submit
- Check your registration and access. Have your TIN, relevant tax registration and IRD e-services access ready. A TIN alone does not establish that tax is payable or a return is required.
- Reconcile the year. Match salary, invoices, bank receipts, business costs and tax payments to the correct assessment year.
- Prepare the supporting information. Include the applicable income schedules and assets-and-liabilities information as at 31 March 2026.
- Check every credit. Match APIT, eligible withholding and instalments to certificates and payment records. Investigate differences before submission.
- Pay and file by the relevant deadlines. Where a return is required, submit through the applicable IRD process and save the acknowledgement, computation and supporting records.
The IRD’s individual return guide explains the return and schedules. Use the official IRD e-services portal for access. VAT and other business obligations are separate from the income-tax examples here.
If you are still unsure which group describes your work, start with your contract, who issues the invoice and how the money reaches you. You can ask the Simplebooks WhatsApp AI assistant a specific question about that situation, then have complex cases reviewed by a tax professional before filing.
This guide explains common situations for 2025/26. The examples are illustrations, not individual tax assessments; your documents and circumstances determine the treatment.
