As a payroll or HR manager in Sri Lanka, one of your core responsibilities is to ensure employees are correctly taxed under the Pay-As-You-Earn (PAYE) system. With the Inland Revenue Department (IRD) continuing to tighten compliance in 2025, it’s more important than ever to stay accurate and up to date.
This guide covers:
- ✅ What is PAYE?
- ✅ Who is liable?
- ✅ How to calculate PAYE
- ✅ Common deductions & exemptions
- ✅ How to file and remit to the IRD
✅ What is PAYE in Sri Lanka?
PAYE (Pay-As-You-Earn) is a system where employers deduct income tax from employees’ salaries and remit it directly to the IRD each month.
✅ Who is Liable to PAYE?
As of 2025, any employee earning more than LKR 100,000 per month (LKR 1.2 million annually) is subject to PAYE. This includes:
- Salaries
- Bonuses
- Allowances (except tax-exempt items)
- Benefits in kind
📌 Even expatriates working in Sri Lanka are subject to PAYE if paid locally.
✅ How to Calculate PAYE (2025 Rates)
You must apply the progressive tax rates to taxable income, after deducting:
- Personal relief (LKR 1.2 million per year)
- Approved deductions (EPF contributions, donations, etc.)
📊 Example: Monthly PAYE Calculation (2025)
| Monthly Gross Salary | LKR 200,000 |
|---|---|
| Less: EPF (8%) | LKR 16,000 |
| Less: Personal Allowance (100,000/mo) | LKR 100,000 |
| Taxable Income | LKR 84,000 |
Apply 6% on the first 83,333 and 12% thereafter…
✅ Or use our Free PAYE Calculator!
✅ Common Allowances & Benefits – Tax Treatment
| Allowance/Benefit | Taxable? |
|---|---|
| Transport Allowance | ✅ Yes (except for official duty) |
| Medical Reimbursement | ❌ No (if supported by bills) |
| Mobile Bill Reimbursement | ✅ Yes (unless job-related) |
| Meals/Food Allowance | ✅ Yes |
| EPF/ETF Contributions | ❌ Employer portion is tax-free |
✅ PAYE Filing & IRD Compliance
As the employer, you must:
- 📅 Deduct PAYE every month
- 💼 File monthly tax schedules (Schedule T10)
- 💵 Remit to IRD by the 15th of the following month
- 📧 File the annual T10A report for each employee
Use RAMIS (the IRD online portal) to file and pay taxes online.
✅ Penalties for Non-Compliance
Late or incorrect filings can lead to:
- 💸 Penalties up to LKR 50,000
- 📑 Interest on unpaid tax
- 🛑 Legal action by IRD for serious non-compliance
🧠 Tips for Payroll Managers
- Use a reliable PAYE calculator (like ours!)
- Double-check non-cash benefits
- Maintain a record of all deductions
- Communicate with employees about tax slips (T10A)
📌 Final Thoughts
Correctly handling PAYE isn’t just about avoiding penalties — it’s about maintaining employee trust and regulatory compliance.
👉 Try our FREE PAYE Calculator for 2025 to simplify your monthly deductions.
Need a custom payroll tool for your company?
📩 Contact us at info@taxcalculator.lk| 📞 [0719204903]
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