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The Complete Guide to Advance Personal Income Tax

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The Sri Lankan government replaced the previously applied Pay As You Earn (PAYE) tax with a revised tax policy known as the Advance Personal Income Tax (APIT) which came into effect from the year of assessment 2020/2021. This detailed guide is designed to help employers understand how APIT is calculated, their obligations, and the applicable tax tables they can refer to when deducting APIT.  

The Pay As You Earn the Sri Lankan government removed (PAYE) tax in November 2019. However, this has been reintroduced as ‘Advance Personal Income Tax (APIT) with the proposed changes to the Inland Revenue Act No. 24 of 2017 with effect from January 1, 2020.

The Inland Revenue Department (IRD), in a circular, stated that the APIT could be taxed and deducted by the employer with the consent of an employee who earns more than Rs 100,000 a month or 1.2 million rupees for a year of assessment.

As an employer, you are responsible for deducting and paying income tax from the gains and profits from each employee’s employment when you make the payments to them.  This guide includes everything you need to know on how to manage APIT tax, including how to apply the APIT tax tables correctly according to the provisions of the Inland Revenue Act No. 24 of 2017.

Table of contents   
  1. What is APIT tax in Sri Lanka?
  2. What payments are liable to APIT?
  3. What payments are excluded or exempted from APIT? 
  4. How to apply tax tables?
  5. How to calculate APIT Tax for cumulative gains and profits?
  6. How to calculate APIT Tax when there is a tax on the tax rate?
  7. What are the other responsibilities of employers?
  8. How to provide primary or secondary employment declaration?
  9. Certification of Income Tax Deductions
  10. How to pay the deducted APIT tax amounts?
  11. How to file APIT returns?
  12. Penalties for evading tax payments
  13. Next steps

What is APIT tax in Sri Lanka?

Advance Personal Income Tax (APIT) is a type of income tax that gets charged based on an employee’s employment income. According to the existing regulations, employees who earn more than Rs 100,000 a month are liable for APIT tax.

The company, or in other words, the employer, is the person who is responsible for deducting the APIT tax. Once it is deducted, they must pay the deduction to the Inland Revenue Department every time salaries get paid.

The amount of APIT tax that gets deducted from every employee is included in their pay sheets. If you want to learn about what type of payments needs to be included in a paysheet and learn about payroll management, you can refer to our A-Z Guide on Salary Sheets, Salary Slips and Salary Slip Formats in Sri Lanka

What payments are liable to APIT?

According to the guidelines issued by IRD, APIT is applicable to the following types of payments.

These payments can either be in cash or other forms of value.

  • Salary, wages, leave pay, overtime pay, fees, pensions, commissions, gratuities, bonuses, and other similar payments.
  • Personal allowance, including any cost of living, subsistence, rent, entertainment or travel allowance.
  • Payments providing discharge or reimbursement of expenses incurred by the employee or as associate of the employee.
  • Payments for an individual’s agreement to conditions of employment.
  • Payments for redundancy or loss or termination of employment.
  • Retirement contribution made to a retirement fund on behalf of the employee and retirement payment received in respect of the employment.
  • Payments or transfers to another person for the benefit of the employee or an associate person of the employee.
  • The fair market value of benefits received or derived by virtue of the employment by the employee or an associate person of the employee.
  • Other payments, including gifts, received in respect of the employment.
  • The market value of shares, at the time allotted, under an employee share scheme, including shares allotted as a result of the exercise of an option or right to acquire the shares, excluding the employee’s contribution for such shares.

What payments are excluded or exempted from APIT?

Sri Lankan citizens who are either resident or a non-resident employee with an income lower than 1.2 million rupees annually, or does not meet a monthly income of LKR 100,000, will not be liable to pay APIT. If you have any employees that fall below this criteria, you do not have to deduct APIT from those employees.

In addition to this minimum criteria, the current APIT provisions also provide the following exclusions and exemptions for various types of income.

  1. Exclusions
  • Exempt amounts and final withholding payments.
  • A discharge or reimbursement of expenses incurred by the individual on behalf of the employer.
  • A discharge or reimbursement of an individual’s dental, medical or health insurance expenses where the benefit is available to all full-time employees on equal terms.
  • Payments made to or benefits accruing to employees on a non-discriminatory basis that, by reason of their size, type and frequency, are unreasonable or administratively impracticable for the employer to account for, or to allocate to the individual.
  • The value of a right or option to acquire shares at the time such shares are granted to an employee under an employee share scheme.
  • Contributions made by an employer to an employee’s account with a pension, provident, gratuity or savings fund approved by the Commissioner-General.
  • Any retirement payments received at the time of the retirement from employment, subject to the condition that the respective retirement contributions have already been considered for income tax purposes and the employee has paid tax on such contributions in a previous assessment.
  1. Exemptions
  • Capital sums paid as compensation or gratuity paid in lieu of personal injuries or death.
  • Pension received from the Sri Lankan Government or from a Department of the Government.
  • Amounts paid on retirement from any Provident Fund approved by the Commissioner General Of Inland Revenue or a regulated provident fund.
  • Amounts paid on retirement from any Pension Fund or the Employees’ Trust Fund, representing investment income earned for any period commencing on or after 1 April 1987.
  • Income derived by an individual entitled to privileges under the Diplomatic Immunities Law and other specified conventions.
  • Benefits derived by a Government employee, from a road vehicle permit granted to such employee.

How to apply tax tables?

The Inland Revenue Department Sri Lanka has published 7 tax tables to help you determine the amount you should deduct from your employees.

Each tax table is designed to provide information on a specific type of payment or income. You may notice that the rate of tax varies based on the type of income, residency status and citizenship of the employee.

  1. Refer to Tax Table 1 to calculate the APIT if,
  • Payments qualify as profits from employment and exceeds LKR 100,000
  • An employee is a resident and has provided consent through a primary declaration form
  • An employee is a non-resident, but a citizen of Sri Lanka

APIT Tax Table 01 should be used only in the case of payments that were received from January 01, 2022 to

Monthly regular profits from employment (Taxable)Tax
Monthly regular profits from employment up to Rs. 100,000/-Relief from Tax
Monthly regular profits from employment exceeding Rs. 100,000/- but not exceeding Rs. 141,667/-6% of monthly regular profits from employment less Rs. 6,000/-
Monthly regular profits from employment exceeding Rs. 141,667/- but not exceeding Rs. 183,333/-12% of monthly regular profits from employment less Rs. 14,500/-
Monthly regular profits from employment exceeding Rs. 183,333/- but not exceeding Rs. 225,000/-18% of monthly regular profits from employment less Rs. 25,500/-
Monthly regular profits from employment exceeding Rs. 225,000/- but not exceeding Rs. 266,667/- 24% of monthly regular profits from employment less Rs. 39,000/-
Monthly regular profits from employment exceeding Rs. 266,667/- but not exceeding Rs. 308,333/- 30% of monthly regular profits from employment less Rs. 55,000/-
Monthly regular profits from employment exceeding Rs. 308,333/- 36% of monthly regular profits from employment less Rs. 73,500/-
(APIT tax table 01)

If you want to find out the exact amount of tax you are required to deduct, you can use our APIT tax calculator.

  1. To deduct tax on lump-sum payments made to resident and non-resident but citizen employees who have submitted primary declarations to employers, you can use Tax Table 2.
  1. Tax Table 3 is applicable for the deduction of Tax from Once-and-for-all Payment (Terminal Benefits – All Employees) subject to the ETF Guidelines provided by the IRD.
  2. To deduct Tax from any profits from Employment made to Non-resident Employees who are Non-citizens in Sri Lanka, use Tax table 4.
  1. Apply Tax table 5 when monthly regular gains and profits are less than LKR 100,000, but cumulative gains and profits are higher than LKR 1.2 million due to higher payments in certain months.
  1. When the employer or any other person settles the income tax liability on gains and profits from employment without it being deducted from the employee or where reimbursement is made to the employee by employer for deductions, use Tax table 6
  1. When there are gains and profits from employment of any employee who has not furnished the primary employment declaration except any employee who is having one employment, or in respect of gains and profits from employment of any employee employed under more than one employer.  Tax table 7  

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How to calculate APIT Tax for cumulative gains and profits?

When calculating the right amount of APIT tax to be deducted from an employee, you can follow the below steps.

Step 1 – Calculate the gross salary from employment, as shown below. We have covered this topic in greater detail in our A-Z Guide on Salary Sheets, Salary Slips, and Salary Slip Formats in Sri Lanka.

Step 2 – Once you calculate the gross amount, you should find the correct type of tax table that needs to get applied. The tax payable for the relevant period should be calculated on the gross salary according to the appropriate APIT tax tables.

How to calculate APIT Tax when there is a tax on the tax rate?

A Tax on Tax can happen due to two reasons.

  • When an employer or any other person has paid the income tax on behalf of the employee, without it getting deducted from their salary
  • When reimbursement is paid to the employee by the employer for the deducted amount of income Tax from the employee’s salary.

In these cases, you have to follow the below steps to calculate the Tax on Tax rate.

Step 1 – Calculate the tax that needs to be deducted based on the process described previously using APIT Tax Table 01.

Step 2 – Once you have calculated the total amount of tax due, apply the correct rate using the table below to find the Tax on Tax Rate.

Monthly Remuneration (Rs.) Tax payable by Employer (Rs.)
0 – 100,000 Relief from Tax 
100,001 – 139,167 (Monthly Remuneration X 6.38%) – 6,380 
139,168 – 175,833  (Monthly Remuneration X 13.64%) – 16,482
175,834 – 210,000(Monthly Remuneration X 21.95%) – 31,095
210,001 – 241,667(Monthly Remuneration X 31.58%) – 51,318
241,668 – 270,833(Monthly Remuneration X 42.86%) – 78,578
270,834 and above(Monthly Remuneration X 56.25%) – 114,844
APIT Tax Table 06

Example 01

Mr. Maharoof, a resident employee works in a private institution. His monthly gross remuneration for the month of April 2023 was Rs. 200,000/-. His employer has undertaken to pay his tax without deducting from his remuneration.

Computation of tax payable by the employer is as follows: – .

Mr. Maharoof’s monthly remuneration, Rs. 200,000, falls within the range of Rs. 175,834 – 210,000.

Applying the corresponding equation;

= (Monthly Remuneration * 21.95%) – 31,095
= (200,000*21.95%) – 31,095
= 43,900 – 31,095
= 12,805

Tax payable by the employer is Rs.12,805

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What are the other responsibilities of employers?

According to section 83 of the Inland Revenue Act No.24 of 2017, ‘Employers are required to deduct and pay income tax on employees’ employment income, with their consent at the time of payment of their salaries.’

Apart from that, there are two more essential responsibilities you have as an employer,

  1. Recovery and/or remittance of taxes. Employers who fail to do so would be held personally liable to pay such an amount – Section 124 (1)
  2. Keeping the documents relating to every payment made to employees in safe custody. Whenever officers authorized by the Commissioner-General call for an inspection, such records should be made available to them – Section 119

How to provide primary or secondary employment declaration?

The primary employment of an employee is the company or the employment to which the employee has provided a declaration of consent to deduct APIT. 

This can be done by submitting a completed primary employment declaration form—signed by both the employee and the employer, which may cover one year of assessment or more.

Although this declaration can be withdrawn at the end of each year, an employee shall not be entitled to have more than one primary employment at any given time.
If the employee also has a secondary employment, he or she is required to submit a completed secondary employment declaration form.

Certification of Income Tax Deductions

Employers must issue an APIT certificate to all employees including employees who have had zero tax deductions.

The certificate should:

  • Contain employee information
  • Include tax deductions made during the year

The employer must issue the certificate before the end of 30th day of April of the following assessment year. If the employee resigns, the employer must issue the certificate within 30 days from the date of resignation. 

All relevant documents including remittance and T-10 forms of all employees are required to be kept securely to be presented to the officers authorized by the Commissioner General—in case of an inspection.

How to pay the deducted APIT tax amounts?

In line with Section 120 (a) of the Inland Revenue Act, the deducted APIT tax during a particular month should be remitted to the Commissioner-General of Inland Revenue Department (IRD) on or before the 15th day of the following month. 

Payments should be made to any branch of Bank of Ceylon, using specified remittance forms issued by the Inland Revenue Department. Employers should also keep a copy of the remittance form after making the payment.

In addition, you can make payments through the Online Tax Payments Platform (OTPP). For further details, please refer to Public Notice Number PN/PMT/2021 dated 08.06.2021 (Revised) dated May 17, 2022, PN/PMT/2022 .01 or log into IRD’s web portal for the user guide. 

If APIT taxes are not paid by the due date –  An interest equal to 1.5% per month or part month on the amount of tax will be charged.

In case an employer fails to pay all or part of the APIT tax for a tax period within 14 days of the due date –  A penalty equal to 20% of the due tax amount will be charged.

How to file APIT returns?

According to Section 120 (d) of the Inland Revenue Act, APIT tax returns for a relevant assessment year must be submitted with the annual statement and schedules to the IRD by employers on or before the 30th of April every year. 

To file the APIT returns, you are required to also submit the following documents.

The instructions on how to complete these documents are given in the Inland Revenue Department’s INSTRUCTIONS TO COMPLETE THE ANNUAL STATEMENT OF EMPLOYER AND SCHEDULES document.
Although you, as an employer, followed the above steps in deducting, making the remittance to the government, and issued an T10 certificate, your employees are also required to file a tax return on their own. In order to do this, they must obtain a Taxpayer Identification No (TIN).

This process can be completed either by visiting the Inland Revenue Department or by using the e-service available through the Inland revenue department website.

Penalties for evading tax payments

If you, as an employer, have failed to deduct tax payments from the employment income or remit them according to the government under the previously described processes, the following penalties and interests will be applied.

  • A penalty equal to 20% of the due tax, if there is a failure to pay or remit, all or part of tax within 14 days of the due date
  • An interest equal to 1.5% per month or part month on the amount of tax, if the tax is not paid by due date

Next steps

The objective of this article is to provide you with a comprehensive understanding of all the information and processes you need to follow in order to meet your obligation with regards to deductions of APIT as an employer.

If you need additional information or help with this process, get in touch today for a free personal consultation from one of our taxation experts.

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