{"id":4100,"date":"2025-07-08T14:09:48","date_gmt":"2025-07-08T08:39:48","guid":{"rendered":"https:\/\/simplebooks.com\/?p=4100"},"modified":"2025-07-14T16:44:55","modified_gmt":"2025-07-14T11:14:55","slug":"income-tax-sri-lanka","status":"publish","type":"post","link":"https:\/\/simplebooks.com\/srilanka\/income-tax-sri-lanka","title":{"rendered":"Everything you need to know about Income Tax in Sri Lanka"},"content":{"rendered":"\n

Income tax is one of the main sources of revenue for any government around the world, including Sri Lanka.<\/p>\n\n\n\n

Due to the complexity of the income tax regulations and the frequency of changes, you may find it challenging to calculate income tax, know the process to file an income tax return or stay up to date on the income tax rates and exemptions. Whether you are an individual income taxpayer or a company, this article will provide a comprehensive guide to Income Tax in Sri Lanka in 2025.<\/p>\n\n\n\n

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Get Free Consultation with Our Tax Experts<\/a><\/div>\n<\/div>\n\n\n\n

What is an Income Tax? <\/h2>\n\n\n\n

Income Tax, introduced in 1932, is governed by the Inland Revenue Department with the authority to charge, levy, and collect income tax on individuals, partnerships, sole proprietorships, or companies.<\/p>\n\n\n\n

Charge, levy, and collect income tax on individuals, partnerships, sole proprietorships, or companies.<\/p>\n\n\n\n

Governments use income tax in Sri Lanka as a way to collect earnings from your business or personal profits, which is used to cover various government costs, including infrastructure development and public services such as health and education.<\/p>\n\n\n\n

Income Tax Rate for Individuals<\/h2>\n\n\n\n

Depending on how much you earn, the total income tax you pay varies. This is categorized under different tiers, known as \u2018Tax Slabs\u2019. If your monthly earnings surpass 150,000 LKR, or 1,800,000 LKR annually, you will be liable to pay income tax effective from 01 April 2025.<\/p>\n\n\n\n

The following sources of income will be considered as part of your taxable income:<\/p>\n\n\n\n

    \n
  • Employment Income<\/li>\n\n\n\n
  • Business Income<\/li>\n\n\n\n
  • Investment Income<\/li>\n\n\n\n
  • Other Income<\/li>\n<\/ul>\n\n\n\n

    Income Tax Qualifying Payments and Reliefs for Individuals <\/h2>\n\n\n\n

    According to the present tax regulations, certain types of payments qualify for deductions.<\/p>\n\n\n\n

    For the below qualifying payments, an individual can deduct whichever is the lowest out of either  \u2153 of the taxable income for that year of assessment, or Rs. 75,000.<\/p>\n\n\n\n

    Donations to Approved Charity, <\/p>\n\n\n\n

    Donations to the Government or other specified institutions<\/p>\n\n\n\n

    Profits remitted to President\u2019s Fund<\/p>\n\n\n\n

    A contribution made by a resident individual to establish a shop for a female individual who is from the Samurdhi beneficiary family<\/p>\n\n\n\n

    Expenditure incurred by any person<\/p>\n\n\n\n

    \u2013 In the production of a film at a cost of not less than five million rupees<\/p>\n\n\n\n

    \u2013 In the construction and equipping of a new cinema at a cost of not exceeding twenty-five million rupees.<\/p>\n\n\n\n

    \u2013 In the upgrading of a cinema at a cost of not exceeding ten million Rupees.<\/p>\n\n\n\n

    \u2013 The deduction of this expenditure is restricted to one-third of the taxable income.<\/p>\n\n\n\n

    Tax Reliefs<\/h3>\n\n\n\n
      \n
    • Personal Relief<\/strong><\/li>\n<\/ul>\n\n\n\n

      Individuals are eligible for a personal relief of Rs. 1,800,000 annually. However, this will not apply to individuals when they are acting as a trustees, executor, or a liquidator. The relief may be deducted from the assessable income of an individual except to the extent that the assessable income comprises gains from the realization of investment assets.<\/p>\n\n\n\n

        \n
      • Rent Relief<\/strong><\/li>\n<\/ul>\n\n\n\n

        Individuals who are residents are entitled to deduct 25% of the total rental income from an investment asset for the year of assessment unless it is intended to be claimed for any actual expenditures incurred by the taxpayer for the repair, maintenance, and depreciation of the investment asset.<\/p>\n\n\n\n

          \n
        • Solar Panel Relief<\/strong><\/li>\n<\/ul>\n\n\n\n

          Resident individuals who have acquired solar panels to fix on their premises and connected to the national grid are entitled to deduct Rs. 600,000 for each year of assessment, up to the total expenditure made on such solar panels or up to the amounts paid to a bank in respect of any loan obtained to acquire such solar panels.<\/p>\n\n\n\n

          Dr. Wasumathi is a General Surgeon at the Karapitiya Teaching Hospital. Also, she maintains her medical center. In addition, she engages in private practice, but her monthly income from private practice never exceeds Rs. 150,000 per month. Her expected income for the year of assessment 2025\/2026 is as follows;<\/p>\n\n\n\n

            \n
          • Employment income is Rs. 9,200,000<\/li>\n\n\n\n
          • Business (Professional) income is Rs. 31,000,000 from her medical center<\/li>\n\n\n\n
          • Gross Interest income received on 01.06.2025, amounting to Rs. 5,000,000 (AIT has been deducted at the rate of 10%. amounting to Rs. 500,000)<\/li>\n\n\n\n
          • Income from private practices Rs. 500,000 (WHT is not deducted at 5% as her income does not exceed Rs.150,000\/- per month).<\/li>\n\n\n\n
          • Rent income is Rs. 900,000<\/li>\n<\/ul>\n\n\n\n

            Employment income includes estimated cash and non-cash benefits. Also, she expected to
            donate Rs. 200,000 to an approved charity. Tax payment made before the first installment is Rs. 250,000.<\/p>\n\n\n\n

              \n
            • Calculation of Estimated Tax Payable<\/strong><\/li>\n<\/ul>\n\n\n\n
               <\/td> <\/td>Rs.<\/strong><\/td><\/tr>
              Employment Income<\/td> <\/td>9,200,000<\/td><\/tr>
              Business Income<\/td>31,000,000 + 500,000<\/td>31,500,000<\/td><\/tr>
              Investment Income<\/td> <\/td> <\/td><\/tr>
              Interest Income<\/td> <\/td>5,000,000<\/td><\/tr>
              Rent Income<\/td> <\/td>900,000<\/td><\/tr>
              Estimated Assessable Income<\/strong><\/td> <\/td>46,600,000<\/strong><\/td><\/tr>
              Less – Reliefs<\/td> <\/td> <\/td><\/tr>
              Rent Relief<\/td>900,000*25%<\/td>(225,000)<\/td><\/tr>
              Personal Relief<\/td> <\/td>(1,800,000)<\/td><\/tr>
              Less \u2013 Qualifying payments<\/td> <\/td> <\/td><\/tr>
              Donation to approved charity (Deductible subject to 1\/3rd of the Taxable Income or Rs. 75,000 whichever is less<\/td> <\/td>(75,000)<\/td><\/tr>
              Estimated Taxable Income<\/strong><\/td> <\/td>44,500,000<\/strong><\/td><\/tr>
              Gross Estimated Tax Liability<\/strong><\/td>1,000,000 x 6% = 30,000<\/td> <\/strong><\/td><\/tr>
               <\/td>500,000 x 18% = 90,000<\/td> <\/strong><\/td><\/tr>
               <\/td>500,000 x 24% = 120,000<\/td> <\/strong><\/td><\/tr>
               <\/td>500,000 x 30% = 150,000<\/td> <\/strong><\/td><\/tr>
               <\/td>42,000,000 x 36% = 15,120,000<\/td>15,540,000<\/strong><\/td><\/tr>
              Less: Estimated APIT<\/td> <\/td>(2,430,000)<\/strong><\/td><\/tr>
              Estimated Tax Payable<\/strong><\/td> <\/td>13,110,000<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

               Income Tax Rate for Companies<\/h2>\n\n\n\n

              The income tax rate in Sri Lanka applicable to a company is different from the rates charged to individuals. Tax rates for individuals start at 6% and the highest rate is set at 30%, whereas for companies the corporate Income Tax rate is 30% of net profit. The amount of tax payable by a company changes based on the industry and the revenue generated.<\/p>\n\n\n\n

              Income Tax Qualifying Payments And Exemptions for Companies<\/h2>\n\n\n\n
              \n