This guide answers the most common questions about income tax in Sri Lanka under the Inland Revenue Act, No. 24 of 2017, as consolidated with all amendments up to and including the Inland Revenue (Amendment) Act, No. 11 of 2026 (certified 3 June 2026). It covers tax rates, residence rules, deductions, capital gains, withholding tax (WHT), filing obligations, penalties, and every major change introduced in 2025 and 2026.

Want your exact tax liability instead of general rules? Use the free, always-updated Sri Lanka Income Tax Calculator at TaxCalculator.lk — built to reflect the latest rates and reliefs, including the 2026 amendments below. In a hurry? See our 25 quick-answer FAQ instead.

A. General Basics of Income Tax in Sri Lanka

1. What law governs income tax in Sri Lanka?

Income tax is governed by the Inland Revenue Act, No. 24 of 2017, which came into operation on 1 April 2018 and replaced the earlier Inland Revenue Act No. 10 of 2006. It has since been consolidated with six amendment acts, the most recent being the Inland Revenue (Amendment) Act, No. 11 of 2026, certified on 3 June 2026.

2. What is Sri Lanka’s tax year?

The standard year of assessment (Y/A) runs from 1 April to 31 March. Trusts and companies may apply to the Commissioner-General of Inland Revenue (CGIR) to change their year of assessment, subject to adjustments to prevent gaps or double-counting of income.

3. Who has to pay income tax in Sri Lanka?

Tax is payable by (a) any person with taxable income for a year of assessment, or (b) any person who receives a final withholding payment during that year. These are treated as two separate bases of charge — income taxed at progressive rates is never combined with income already taxed as a final withholding payment (e.g., most bank interest).

4. What’s the difference between “taxable income” and “assessable income”?

Assessable income is total income from all sources — employment, business, investment, and other — computed separately for each source. Taxable income is assessable income less qualifying payments and reliefs (personal relief, approved donations, etc.). Tax is ultimately calculated on taxable income.

5. What are Sri Lanka’s current individual income tax rates (2025/26 onward)?

From 1 April 2025: 6% on the first Rs. 1,000,000; 18% on the next Rs. 500,000; 24% on the next Rs. 500,000; 30% on the next Rs. 500,000; and 36% on income above Rs. 2,500,000. The annual personal relief is Rs. 1,800,000. Capital gains are taxed separately at a flat 10%.

B. Tax Residence Rules

6. How is tax residence determined for an individual in Sri Lanka?

An individual is resident if they are present in Sri Lanka for 183 days or more in the year, are employed in public service abroad on secondment, or maintain a permanent home in Sri Lanka and were present at any time during the year. One day can change residence status — 182 days present means non-resident status (Sri Lanka-source income only); 183 days means resident status (worldwide income taxed).

7. Do Investor Category Residence Visa holders pay tax as residents? (2026 change)

No — this is a key 2026 change. Under new section 69(1A), an individual holding an Investor Category Residence Visa issued by the Controller of Immigration and Emigration is automatically treated as a non-resident for tax purposes, regardless of how many days they spend in Sri Lanka. This is effective from 1 April 2025 and is a significant planning tool for high-net-worth individuals.

8. If I take up an overseas job contract, do I stop being a Sri Lankan tax resident?

Potentially yes. New section 69(2A) (effective 1 April 2025) provides that an individual who leaves Sri Lanka for employment under a contract of at least one year, with an employer not associated with their Sri Lankan employer, is not treated as resident from the first day of the year of assessment in which they leave, until the contract expires.

9. Are foreign crew on Sri Lankan-operated ships automatically taxed as residents?

Not fully. From 1 April 2025, a foreign citizen deemed resident solely because of employment on a ship operated by a resident person is only liable to tax on that ship-employment income, and is treated as resident only for the period of that employment — not on other worldwide income.

10. How is company residence determined?

A company is resident in Sri Lanka if it is incorporated in Sri Lanka, or if its management and control is exercised in Sri Lanka during the year (a key factor being where board meetings are actually held).

11. What happens to my tax position if I change residence status mid-year?

The year is split into resident and non-resident periods, treated as separate years of assessment. Assets are deemed realised and reacquired at market value on the date of change, which can trigger “departure taxation” on unrealised gains.

C. Employment, Business, Investment & Other Income

12. What counts as employment income in Sri Lanka?

Employment income covers salary, wages, leave pay, overtime, fees, pensions, commissions, gratuities, bonuses, personal allowances (cost of living, subsistence, rent, entertainment, travel), expense reimbursements, redundancy/termination payments, retirement contributions, benefits in kind at market value, and employee share allotments.

13. What is excluded from employment income?

Key exclusions include: exempt amounts and final WHT payments; genuine reimbursement of employer-related expenses; medical/health insurance offered equally to all employees; de minimis benefits that are impractical to allocate individually; the value of share options at grant (taxed later at exercise); and approved employer retirement fund contributions.

14. Can I claim deductions against my salary income?

No. Section 10(1)(a) is absolute — no deductions of any kind are allowed against employment income. The practical planning approach is to maximise excluded benefits (approved EPF, equal-access medical insurance) rather than seek deductions.

15. What distinguishes “business income” from “investment income”?

Business requires trade, profession, vocation, or an adventure in the nature of trade, marked by repetition, systematic activity, profit motive, and active engagement. Investment income arises from an asset producing dividends, interest, rent, or similar returns without amounting to a business — for example, one rental property is typically investment, while five actively managed rental properties with staff may constitute a business. The distinction matters because business income allows broader deductions and different loss set-off rules apply.

16. What is taxed as investment income?

Dividends, interest, discounts, annuities, natural resource payments, rents, premiums, royalties, gains on realisation of investment assets, and lottery/betting/gambling winnings, among other items.

17. What is “Other Income” and how did the 2026 Amendment Act change it?

Other Income is a residual category for gains not falling under employment, business, or investment. Effective 1 April 2024, the 2026 Amendment Act narrowed the old open-ended wording (“from any source whatsoever”) to “from other sources,” and expressly added gains from the realisation of motor vehicles as Other Income.

D. Deductions and Allowances

18. What is the general rule for deducting business expenses?

Expenses incurred in producing business or investment income during the year are deductible, provided they are not capital in nature (i.e., the benefit does not last more than 12 months). Capital expenditure is instead recovered through capital allowances.

19. Are cash payments over Rs. 500,000 deductible?

Only if paid through the banking system. Since 8 May 2023 (a retrospective 2026 amendment), accepted methods include crossed cheque, bank draft, online/electronic transfer, or now also direct cash deposit into the payee’s own bank account. A cash payment of Rs. 500,000 or more made outside these methods permanently loses its deductibility — it cannot be claimed as an expense or added to the cost of an asset.

20. What is deductible under the R&D and marketing “super-deduction” rules?

Qualifying R&D and agricultural start-up expenses are 100% deductible even if capital in nature, plus an additional 100% deduction under the Sixth Schedule (for 5 years from commencement) — potentially 200% total. A similar (now largely sunset) additional 100% deduction applied to qualifying marketing/communication expenditure under section 15A.

21. How are business losses treated?

Business losses carry forward 6 years and can offset any business income (and can also be set against investment income, though not vice versa). Investment losses carry forward 6 years and offset investment income only. Enhanced-investment losses can carry forward up to 10 years, or 25 years for mega-investments exceeding USD 1 billion.

22. Does a change of company ownership wipe out carried-forward losses?

Yes, generally. A change of control exceeding 50% within a 3-year period eliminates carried-forward losses, financial costs, and reversals under section 64, unless the same business is continued for at least 2 years after the change. This is a critical issue to check in any M&A transaction.

23. What is the personal relief amount for individuals?

Rs. 1,800,000 per year, effective from 1 April 2025 (up from Rs. 1,200,000 for 2023–2025).

24. Can unused qualifying-payment deductions (like donations) be carried forward? (2026 change)

Yes — this is new. From 1 April 2025, if a qualifying payment deduction (certain donations) cannot be fully used in a year because assessable income is too low, the unused amount now carries forward and can be deducted in the next (or a later) year of assessment, rather than being permanently lost.

E. Capital Gains Tax

25. What is the capital gains tax rate in Sri Lanka?

Gains from the realisation of investment assets are taxed at a flat 10%, regardless of the taxpayer’s other income or tax bracket.

26. How is a capital gain calculated?

Gain = Consideration received − Cost. Cost includes the acquisition price, post-1 April 2021 capital improvements (not routine maintenance), incidental expenditure such as legal, valuation, and transfer costs, and certain income amounts already brought to tax.

27. When must capital gains tax be paid?

Within 30 days of the realisation (asset disposal), on a self-assessment basis, or as separately assessed by the CGIR.

28. Is my home exempt from capital gains tax?

Generally yes — the definition of “investment asset” excludes a principal residence that has been owned for 3+ years and lived in for 2+ years.

29. Can donating an appreciated asset to Government or a university avoid capital gains tax? (2026 change)

Yes — this is a brand-new relief. From 3 June 2026, under new section 46(3A), a gift or donation of an asset to the Government of Sri Lanka or a recognised university is treated as realised at its net cost, meaning no taxable gain arises on the donation.

30. What happens to capital gains tax on a transfer between spouses or on death?

Transfers to a spouse are treated as occurring at the transferor’s original cost (no immediate tax, deferral). Transfers on death are similarly deemed to occur at the deceased’s cost, with the tax liability deferred to eventual disposal by the heir.

F. Withholding Tax (WHT)

31. What is the WHT rate on bank interest?

10% (doubled from 5%, effective 1 April 2025), generally treated as a final tax unless the recipient opts otherwise.

32. Do low-income savers have to pay WHT on their bank interest? (2026 change)

Not necessarily. From 1 April 2025, a resident individual with no taxable income for the year can submit a self-declaration to their bank and receive interest gross, without the 10% WHT being deducted, under new section 84(3)(f). Submitting a false or misleading self-declaration can attract a penalty of up to Rs. 200,000 under new section 178A.

33. What is the WHT rate on dividends?

15%, treated as a final withholding tax, in effect since 1 October 2022.

34. What is the WHT rate on rent?

10% on the full amount, but only where aggregate rent exceeds Rs. 100,000 per month; below that threshold, no WHT applies. Rental WHT is non-final and creditable against the landlord’s overall tax liability.

35. What is the WHT rate on service fees?

5% on service fees paid to residents exceeding Rs. 50,000 per month, and 14% on service fees paid to non-residents. Both are non-final and creditable.

36. Which professions are subject to service-fee WHT after the 2026 amendment?

The list was greatly expanded from 3 June 2026 to explicitly include: academics, auditors, modellers, personal trainers, coaches, valuers, artists, actors, dancers, singers, musicians, event organisers, photographers, videographers, therapists, counsellors, beauticians, cooks, electricians, dentists, veterinarians, social media specialists, brand ambassadors, sportspersons, IT specialists, advertising agents, advisors, translators, writers, and debt collectors — closing a gap that previously left many gig-economy and creator-economy professionals outside WHT.

37. Must withholding agents now follow a specific format for WHT statements? (2026 change)

Yes. From 3 June 2026, the CGIR can specify mandatory procedures, formats, and forms for WHT statements under new section 86(9), with penalties of up to Rs. 200,000 per year for non-compliant withholding agents (after a warning) under new section 178A.

38. Are WHT certificates free of charge? (2026 change)

Yes — from 3 June 2026, new section 87(6) requires withholding agents to issue WHT certificates to payees free of any charge.

G. Corporate & Business Entity Taxation

39. What is the standard corporate income tax rate in Sri Lanka?

30%, effective from 1 April 2023. Reduced rates of 15% apply to service exports and foreign-source income remitted through a Sri Lankan bank; a higher 45% rate applies to betting, gaming, liquor, and tobacco businesses.

40. Are the liquor and tobacco rates the same for exports? (2026 change)

No — retrospective to 1 April 2022, exports of liquor and tobacco products are now excluded from the higher 45% rate bracket.

41. How are partnerships taxed?

Since 1 January 2020, partnerships are taxed as entities in their own right (not just at partner level) at First Schedule rates, with 8% WHT applying to each partner’s distributed share, which is then creditable against the partner’s own tax.

42. How are trusts and unit trusts taxed?

Trusts are taxed at the entity rate of 30% (from 1 April 2023), unless beneficiaries are presently entitled to the income, in which case the beneficiaries are taxed instead. Unit trusts are treated the same way, with unit holders as beneficiaries.

43. What happens if a unit trust fails to issue investor certificates? (2026 change)

From 1 April 2025, a unit trust or mutual fund that fails to serve every unit holder with an income/WHT certificate within 5 months of the year-end is deemed to be a resident company, and all resident-company tax rules apply to it.

44. Is there a new tax rate for unit trusts and similar entities? (2026 change)

Yes — First Schedule paragraphs 1, 2, 3, 5, and 7 were amended effective 3 June 2026, generally raising rates from 10% to either 15% or 30% depending on the specific category. Businesses should check exactly which paragraph applies to their entity type.

H. Filing Returns & Compliance

45. When is the annual income tax return due?

By 30 November following the year of assessment. Capital gains tax returns must be filed separately, within 30 days of the relevant realisation.

46. Who is exempt from filing a tax return?

Individuals below the income threshold, those with only partnership income (already taxed at partnership level), and employees taxed entirely through APIT withholding. From 1 April 2025, individuals whose only reportable item is interest income not exceeding Rs. 5,000 also don’t need to file.

47. Do senior citizens have to file electronically? (2026 change)

No. From Y/A 2025/26, new section 113(1D) confirms senior citizens may file returns either in writing or electronically, and are not compelled into mandatory e-filing.

48. How do quarterly tax instalments work, and what’s changing in 2026?

Companies and partnerships currently pay estimated tax in quarterly instalments by 15 August, November, February, and May. From Y/A 2026/27, the instalment base shifts to a prior-year basis (tax payable on the previous year’s taxable income) rather than pure self-estimation, with an opt-down available where the payer had no taxable income in the prior year or genuinely expects lower income in the current year.

49. Will I need a TIN Certificate for everyday transactions from 2026? (2026 change)

Yes — this is one of the most practically important 2026 changes. From 1 April 2026, a valid TIN Certificate will be required to open a bank account, register or renew a motor vehicle, register land, register a business, transfer shares in a Sri Lankan company, obtain building-plan approval, or apply for a credit card. Every Sri Lankan-incorporated company must also register with the CGIR within 30 days of incorporation.

50. Is there a “safe harbor” from tax audits for compliant individual taxpayers? (2026 change)

Yes — a significant new protection. From Y/A 2025/26, under new section 135(7), an individual who declares tax payable of at least 120% of the prior year’s tax, pays it in full without claiming a refund, and files an affidavit confirming no fraud or evasion, is shielded from any amended or additional assessment on that year’s return.

I. Key 2026 Amendment Act Changes at a Glance

51. What is the Inland Revenue (Amendment) Act, No. 11 of 2026?

It is the sixth amendment to the Inland Revenue Act No. 24 of 2017, certified on 3 June 2026 and published in the Gazette Supplement of 5 June 2026. It amends, inserts, or repeals dozens of sections — some retrospectively (back to as early as 1 April 2018), some effective 1 April 2025, some from 1 April 2026, and most others from the general commencement date of 3 June 2026.

52. Are life insurance payouts now tax-free in Sri Lanka? (2026 change)

Largely yes. New section 52A (effective 1 April 2025) excludes amounts received under a life insurance policy on death, maturity, or surrender from an individual’s assessable income — though this doesn’t cover amounts that are actually employment/business income, or payments made otherwise than on death or maturity (e.g., regular annuity-style payouts).

53. What is the new tax credit for backdated salary arrears? (2026 change)

New section 96A (retrospective to 1 January 2024) gives employees a tax credit when they receive arrears of salary — for example, from reinstatement, a backdated promotion, or a backdated pay increment — so the lump-sum payment isn’t unfairly pushed into a higher tax bracket purely due to payment timing. The credit is refunded within 3 months of a claim.

54. Is there an interest amnesty for old unpaid tax? (2026 change)

Yes, a one-off, time-limited amnesty. The CGIR must write off accrued interest on old underpayments (under section 157, the Surcharge Tax Act, or the Finance Act debt-repayment levy, up to Y/A 2024/25), provided the underlying principal tax and penalties are paid in full within six months of 3 June 2026 — i.e., by approximately 3 December 2026.

55. Has tax recovery enforcement changed in 2026?

Substantially. From Y/A 2026/27, unpaid tax can be converted directly into a Magistrate’s Court “deemed fine” under new section 163(4A)–(4H). Once the CGIR’s certificate of default reaches the Magistrate, the correctness of the underlying tax generally cannot be challenged there — objections and appeals must be filed before that point.

56. Are there new criminal offences for non-filing from 2026?

Yes. New Chapter XVIIA and section 185A create a summary prosecution route (fine up to Rs. 400,000 and/or up to 6 months’ imprisonment) for failing to comply, without reasonable cause, with a written warning notice to file a return, register, or appear before the CGIR.

57. What changed for exporters under the 2026 Amendment Act?

New section 72(3), retrospective to 1 April 2018, allows a direct deduction for payments with no Sri Lankan source, to the extent they relate to the export of goods or services — removing a long-standing restriction.

58. What changed for non-resident businesses with a Sri Lankan branch?

From 1 April 2025, new sections 79(2)–(3) cap the deduction for “head office expenditure” (executive/admin costs incurred outside Sri Lanka) at the lower of actual expenditure or 10% of the branch’s assessable income from its Sri Lankan business.

J. Penalties & Enforcement

59. What is the penalty for late filing of a tax return?

For individuals: Rs. 50,000 plus Rs. 1,000 per day, or 5% of the tax plus 1% per month, whichever applies. For companies and other entities: Rs. 50,000 plus Rs. 10,000 per day, or 5% of the tax plus 1% per month.

60. What is the penalty for late payment of tax?

10% of the unpaid tax, plus a further 2% per month on the outstanding balance.

61. What is the penalty for underpaying tax through negligence or fraud?

25% of the understated tax for negligent underpayment; 75% for fraudulent underpayment exceeding Rs. 10 million or 25% of the correct liability; and 100% for deliberate false or misleading statements.

62. What are the transfer pricing (TP) documentation penalties?

1% of the total related-party transaction value for non-documentation, up to Rs. 250,000 for non-submission, 2% of the transaction value for non-disclosure, and 200% of the additional tax assessed for concealment.

63. Can I go to jail for tax evasion in Sri Lanka?

Yes. Tax evasion under section 189 can carry imprisonment of up to 5 years and/or a fine. Aiding or abetting tax evasion — which can include advisors who knowingly prepare false returns — is also a criminal offence under section 187.

K. Objections, Appeals & Disputes

64. How long do I have to object to a tax assessment?

30 days from the date of the assessment notice. This deadline is strictly enforced — missing it makes the assessment final and generally unappealable, so filing a protective objection when in doubt is essential.

65. Does filing an objection or appeal stop me from having to pay the tax?

No. Tax remains due and collectible while an objection or appeal is pending, and interest continues to accrue during the dispute.

66. What is the process after objecting to the CGIR?

The CGIR must determine the objection within a reasonable time (if no determination is made within 2 years, the taxpayer may appeal directly to the Tax Appeals Commission). A taxpayer dissatisfied with the CGIR’s determination can request an internal administrative review before proceeding to the Tax Appeals Commission (TAC), and ultimately to the Court of Appeal on questions of law only.

67. Who bears the burden of proof in a tax dispute?

The taxpayer, in all proceedings — except in cases of fraud or wilful neglect, where the burden shifts to the CGIR. This makes thorough documentation essential for every position taken.

L. International Tax & Double Taxation

68. Does Sri Lanka have double taxation agreements (DTAs) with other countries?

Yes, with more than 40 countries. DTA provisions prevail where beneficial to the taxpayer, subject to a beneficial-ownership restriction where more than 50% of a non-resident treaty-country entity is owned by individuals not resident in that treaty country.

69. Can I claim credit for foreign tax already paid?

Yes. Resident taxpayers can credit foreign tax against Sri Lankan tax on the same income, limited to the lower of the actual foreign tax paid or the Sri Lankan tax on that income at the average Sri Lankan rate. There is no carryforward of excess foreign tax credit, and the calculation is done source by source.

70. How does transfer pricing work for related-party transactions?

Transactions between associated persons (both cross-border and, in certain cases, domestic) must be priced at arm’s length. Sri Lanka’s TP Regulations recognise five accepted methods (CUP, Cost Plus, Resale Price, Profit Split, TNMM) and require documentation scaled to transaction size — a Disclosure Form for all, a Local File above Rs. 200 million, a Master File above Rs. 7,500 million, and Country-by-Country Reporting above Rs. 115,000 million. Advance Pricing Agreements are available for up to 4 years of certainty.

M. Getting Help

71. Where can I calculate my exact Sri Lankan income tax liability, including the 2025 and 2026 rate and relief changes?

Use the free Sri Lanka Income Tax Calculator at TaxCalculator.lk. It applies the current personal relief (Rs. 1,800,000), the latest progressive tax bands, WHT rates, and rental/qualifying-payment reliefs automatically — so you don’t have to manually work through the First and Fifth Schedules.

72. I’m not sure whether I’m a tax resident, or which 2026 changes apply to me — what should I do?

Because residence status, the Investor Visa non-residence rule, the TIN Certificate requirement, and the safe-harbor and salary-arrears reliefs all depend on individual facts, it’s worth getting a quick assessment before your annual return is due. Visit TaxCalculator.lk to run the numbers, or reach out through the site for guidance tailored to your situation.

Disclaimer: This FAQ is for general informational purposes and summarises the Inland Revenue Act No. 24 of 2017 as consolidated with amendments up to and including the Inland Revenue (Amendment) Act, No. 11 of 2026. It is not legal or tax advice. Rates, reliefs, and effective dates should be verified against the official Gazette text (the Sinhala text prevails in case of inconsistency) or with a qualified tax advisor before making decisions.