How Self-Employed Tax Differs from Salaried Tax

If you’re self-employed — a freelancer, sole trader, or independent professional — there’s no employer deducting APIT for you each month. You calculate, declare, and pay your own tax based on your net business profit, not your gross receipts.

Step 1: Calculate Gross Income

Total everything you earned from your self-employed activity during the tax year (1 April to 31 March) — all client payments, sales, or fees received.

Step 2: Deduct Allowable Business Expenses

Subtract legitimate, documented business expenses: equipment, software, transport for business purposes, a proportionate share of home office costs, professional subscriptions, and marketing. What’s left is your net taxable profit.

Step 3: Apply Personal Relief

Deduct the LKR 1,800,000 annual personal relief (combined with any other income you have) before applying the progressive tax bands.

Step 4: Apply the Progressive Tax Rates

Your taxable income (after relief) is taxed progressively: 6% on the first slab, then 18%, 24%, 30%, and 36% on each successive slab above that, up to the top rate on income above LKR 4,300,000.

Step 5: Check If the Foreign-Currency Rate Applies

If a meaningful part of your self-employed income comes from overseas clients paid in foreign currency through the banking system, a concessionary 15% maximum rate may apply instead — this can significantly change your total liability, so don’t skip checking it.

Step 6: Plan Your Quarterly SET Instalments

If your estimated annual liability exceeds LKR 6,000, you’re required to pay in quarterly instalments rather than one lump sum. Missing these generates interest even if your year-end payment is correct and on time.

Step 7: File Your Annual Return

Declare your total self-employed income, expenses, and tax paid on your annual return, reconciling against your quarterly instalments.

Calculate Your Self-Employed Tax

Use our free Sri Lanka Income Tax Calculator and Quarterly SET Calculator to work out your exact numbers for 2025/26.