Statement of Estimated Income Tax – FAQs + Guide

Statement of Estimated Income Tax – FAQs + Guide

In this blog, we’ve answered some of the most common questions you would have had while preparing your Statement of Estimated Income Tax form (SET form).

Let’s jump right into it.

What is a Statement of Estimated Income Tax Payable (SET)?

If you earn over LKR 250,000 per month or up to LKR 3,000,000 for a year, then you need to file income tax. 

Before you do this, you will have to inform the Government how much tax you owe them for the current financial year.

But, this seems a little tricky because you still haven’t completed the financial year, right? That is why you will have to estimate your tax amount.

This is where the Statement of Estimated Income Tax form comes in. The SET form will help you estimate how much income you will earn during the financial year, and based on this value, you can calculate how much tax you owe to the Government. 

These tax values are estimated for the year of assessment and then paid in four instalments, once every three months. So, based on the estimation, you can make the payments quarterly (four times a year in total).

Who do I submit the form to?

Once you have completed the SET form, you can submit it by hand or through registered post to the Central Document Management Unit (CDMU),IRD Head Office, Chittampalam A Gardiner Mawatha, Colombo 02.

If you plan on physically submitting the SET you can also do it at any Regional Office available in your area. 

When do I have to submit my SET?

For every financial year of assessment, the first instalment of the SET must be filed on or before the 15th of August.

You need to submit your SET calculation for the entirety of the financial year (2021/2022 in this case) on the 15th of August.

When do I have to pay the estimated taxes mentioned in my SET?

You will be paying the first quarterly payment as you submit your SET form on the 15th of August. 

After that, you’ve got three more instalment payments to go.

Here is what your payments periods will look like:

Instalment (quarter)Payment due date
First instalment15.08.2021
Second instalment15.11.2021
Third instalment15.02.2022
Fourth instalment15.05.2022
Final payment (2021/2022)30.09.2022
 

When do I have to pick the revised statement when submitting SET?

When you’re preparing your SET form, you will be asked whether you’re submitting:

  1. Original statement OR;
  2. Revised statement. 

If it is your first time filing for SET during the financial year, you can choose the ‘Original Statement’ option. 

In case you need to change any of the information you’ve mentioned on your Original Statement, you can submit a ‘Revised Statement’ (at any point during the financial year).

Your instalment payments for the remaining quarters will also change based on your Revised Statement. 

How can I qualify for deductibles  (qualifying payments/ relief)?

To qualify for qualifying payments, there are 3 possible ways:

  1. Donate to an Approved Charity.

If you are the individual donor, you can choose between either 1/3 of the taxable income of the individual for that year of assessment or Rs. 75,000 as the deductible. The chosen value must be whichever is the lowest.

  1. Donate to the Government or other specified institutions.
  2. Profits remitted to the President’s Fund.

To qualify for reliefs, you need to qualify for: 

  1. Personal relief 

If you are a resident or non-resident (but citizen) then you are entitled to a personal relief of LKR 3,000,000 for each year of assessment. 

However, if you are a person who also acts as the trustee, receiver, executor or liquidator then this will not apply. 

The relief may be deducted from the assessable income of an individual except to the extent that the assessable income comprises gains from the realisation of investment assets.

  1. Rent relief 

If you are a resident you are entitled to a deduction of 25% on the total rental income from an investment asset for the year of assessment. 

But if it is supposed to be claimed for any actual expenditures like repairs, maintenance, and depreciation of the investment asset, then it cannot be deducted. 

  1. Expenditure relief

If you have had certain expenses during the year of assessment (listed below), then you are entitled to expenditure relief. 

Through this, you can deduct the relevant expenditure up to a total sum of LKR 1,200,000, that you have made during the year.  

  • health expenditure including contributions to medical insurance; 
  • educational expenditure incurred locally, by such individual or on behalf of his children;
  • interest paid on housing loans; 
  • contributions made to an approved pension scheme; 
  • expenditure incurred for purchase of equity or security.

How can I estimate the tax based on my income?

After you total your employment, interest and business incomes, you get your value of ‘Estimated Assessable Income’. 

From this, you can deduct any reliefs and qualifying payments that you are entitled to. The value you are left with is the ‘Estimated Taxable Income’. 

How much-estimated tax you have to pay depends on the calculation using the tax rate as shown in this grid:

Taxable Income RateTax on Taxable income equal to the lowest range
First Rs. 3 million6%180,000
Second Rs. 3 million12%360,000
On the balance18%

How do I qualify for foreign tax credits?

If you have access to a foreign investment income, you can receive a tax break. 

The foreign tax credit is limited to the amount of tax on the part of profits/ income that is related to the foreign tax credit. 

If you own or run a business abroad the company overseas can be taxed for this. 

However, if you are covered by a double tax agreement, which means your country has signed an agreement with the overseas country, then that company will not be taxed here. 

What happens if I submit a late or false SET form?

According to the IR Act, if you fail to submit your SET on or before the due date, you will be liable to pay a penalty. 

If you also fail to properly comply with a request for information made under this Act, within a deadline, you will be liable for a penalty of an amount not exceeding one million. 

The SET form is a statement to tax officials, so if your SET form is misleading or false, you will be liable to pay a penalty.

What happens if I miss a tax payment?

Legal action can be taken against you if you purposely miss a payment. 

If you do not pay or make a late payment, you will have to pay a penalty equal to 10% of the amount of tax that is unpaid within 14 days of the due date. 

You will also have to pay a higher interest -interest on default of 1.5% interest per month/ part of a month. This will be charged on your failure to pay your instalment in part or full. 

Does the National Budget decide on tax concessions and exemptions?

It’s important to keep an eye on the Budget updates that are decided in Parliament, because usually there will be exemptions listed for a particular year depending on the country’s priorities. 

For example, in the 2021 Budget update, there were tax exemptions given to people who were working in agriculture because it was one of our country’s main priorities. 

The annual budget meeting is usually held at the end of a year to discuss the budget for the following year. 

So make sure to go through what concessions or exemptions you are entitled to, so you can maximize your benefits. 

You can find a detailed update on the 2021 Budget on our blog here 2021 Budget Update – කොළඹ

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