Have you noticed that your bank is deducting 10% from your fixed deposit interest or savings account interest? You’re not alone — thousands of Sri Lankans are affected, and many don’t even know they can legally stop this deduction.
From 1st April 2025, the IRD has introduced updated rules on Advance Income Tax (AIT) on interest income. This guide explains exactly who qualifies for an exemption and how to get your full interest without the 10% cut.
What is AIT on Bank Interest?
AIT (Advance Income Tax) is a 10% tax deducted at source by banks and financial institutions on interest payments made to individuals. This applies to:
- Fixed deposits
- Savings accounts
- Treasury bills and bonds
- Corporate debentures
The bank deducts this automatically and sends it to the IRD on your behalf.
Can You Stop This Deduction?
Yes — if you qualify. According to IRD Circular SEC/2025/E/01, individuals whose total assessable income does not exceed Rs. 1,800,000 for a Year of Assessment can submit a self-declaration to their bank to stop the AIT deduction.
Who Qualifies?
You qualify if your total annual income from ALL sources — including salary, business income, rent, and interest — is below Rs. 1,800,000 (Rs. 150,000 per month).
Common qualifying groups:
- Senior citizens relying only on bank interest and EPF
- Housewives with savings accounts
- Students with bank accounts
- Low-income earners with small fixed deposits
- Retired individuals with pension below Rs. 150,000/month
Who Does NOT Qualify?
If your total income from salary + interest + rent + business exceeds Rs. 1,800,000, you cannot submit a self-declaration. The bank will continue to deduct 10% AIT.
However, you can claim this as a tax credit when you file your annual return. If you’ve overpaid, you’ll receive a refund.
How to Submit the Self-Declaration
Step 1: Download the Form
Get the self-declaration form from your bank branch or download it from the IRD website at www.ird.gov.lk.
Step 2: Fill in Your Details
Include your:
- Full name and NIC number
- TIN (Taxpayer Identification Number) — if you have one
- Details of your income sources
- A declaration that your total income will not exceed Rs. 1,800,000
Step 3: Submit to Your Bank
Hand it over at your branch. You need to submit a separate form to each bank where you hold accounts.
Step 4: Bank Stops Deducting AIT
Once accepted, the bank will stop deducting the 10% AIT on future interest payments.
Important Warnings
- Invalid self-declarations: If the IRD later determines that your income actually exceeds the threshold, they will notify the bank to restart deductions — and you may face penalties
- One form per bank: You must submit to each financial institution separately
- Renewal: Check with your bank whether the declaration needs annual renewal
What If I’ve Already Had AIT Deducted?
If you’ve had AIT deducted but your total income is below Rs. 1,800,000, you can:
- File an income tax return declaring all your income
- Claim the AIT as a tax credit
- Apply for a refund if you’ve overpaid
The IRD has a process for senior citizens and low-income earners to claim refunds online. Visit our guide on how to claim a tax refund.
Calculate Your Tax Now
Not sure whether you qualify? Use our free tax calculator at www.taxcalculator.lk to check if your total income exceeds the threshold.
Enter all your income sources — salary, interest, rent — and we’ll show you whether you owe tax or not.
Share This With Someone Who Needs It
Many senior citizens and low-income earners in Sri Lanka are unnecessarily losing 10% of their interest income. If you know someone who could benefit from this information — a parent, grandparent, or friend — please share this article with them.
👉 Calculate your tax now | 📩 Need help filing? Contact us
Tags: bank interest tax Sri Lanka, AIT self declaration, stop 10% tax on FD, withholding tax on interest, senior citizen tax refund Sri Lanka, TaxCalculator.lk
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