Withholding tax on FD interest in Sri Lanka increased to 10% from April 2025. Learn who qualifies for exemption and how to claim a refund. Free calculator.
If you have fixed deposits or savings accounts in Sri Lanka, your bank is required to deduct Advance Income Tax (AIT) — commonly called withholding tax — on the interest earned. From 1 April 2025, the AIT rate on interest income has increased to 10%, up from the previous 5%. This article explains who is affected, who can claim an exemption, and how to get a refund if you overpaid.
What Is Withholding Tax on Interest?
When a bank or financial institution pays you interest on a deposit, they must withhold a percentage of that interest and remit it to the Inland Revenue Department on your behalf. This is an advance payment of your income tax — not a separate tax. The withheld amount is credited against your annual income tax liability when you file your return.
New AIT Rate from April 2025
The Inland Revenue (Amendment) Act No. 02 of 2025 changed the AIT rate on interest income:
| Period | AIT Rate on Interest |
|---|---|
| Before 1 April 2025 | 5% |
| From 1 April 2025 | 10% |
This means on a fixed deposit earning Rs. 100,000 interest per year, the bank will deduct Rs. 10,000 as AIT and pay you Rs. 90,000.
Who Can Claim Exemption?
If you have no taxable income for the assessment year (i.e., your total income is below the Rs. 1,800,000 personal relief threshold), you can apply for an exemption from withholding tax on interest. To do this, you must provide a self-declaration to your bank as specified by the Commissioner-General of Inland Revenue.
Important warning: Providing false or misleading information in the self-declaration can attract a penalty of up to Rs. 200,000.
Senior Citizens — Special Provisions
Senior citizens who are not installment taxpayers and whose quarterly refund claim does not exceed Rs. 40,000 (or Rs. 180,000 annually) will receive their refund within three months, before a tax audit. Senior citizens are also now permitted to file tax returns either in writing or electronically.
How Withholding Tax Affects Your Income Tax
At the end of the year, when you calculate your total income tax liability, the AIT already deducted by your bank is subtracted from the total amount you owe. If the AIT exceeds your actual tax liability, you receive a refund.
Example:
| Item | Amount |
|---|---|
| Total assessable income | Rs. 2,300,000 |
| Personal relief | Rs. 1,800,000 |
| Taxable income | Rs. 500,000 |
| Income tax at 6% | Rs. 30,000 |
| APIT deducted by employer | Rs. 25,000 |
| AIT deducted by bank | Rs. 15,000 |
| Total advance tax paid | Rs. 40,000 |
| Refund due | Rs. 10,000 |
In this case, you would receive a Rs. 10,000 refund after filing your tax return.
How to Claim a Withholding Tax Refund
- File your annual income tax return through the IRD e-Services portal
- Include all interest income and AIT deducted (from bank certificates)
- The system will calculate if you are due a refund
- Submit the refund claim through the portal
- Refunds up to Rs. 180,000 are processed within 3 months
Important: Refund claims for the 2024/2025 assessment year must be submitted within 30 months from the last date of the assessment year.
Documents You Need
- Interest certificates from all banks and financial institutions
- Details of all deposits (account numbers, amounts, interest rates)
- APIT/T10 certificate from employer (if applicable)
- TIN and IRD login credentials
Withholding Tax on Dividends
AIT also applies to dividend income:
| Type | AIT Rate |
|---|---|
| Dividends from resident companies | 14% |
| Interest from banks/financial institutions | 10% |
Track Your Withholding Tax with TaxCalc LK
TaxCalc LK includes a dedicated Withholding Tax Refund calculator that tracks all your AIT deductions from fixed deposits, savings accounts, and dividends. The app calculates whether you are due a refund and the exact amount to claim.
Download TaxCalc LK — Withholding Tax Calculator
Features:
- Track AIT from multiple bank accounts
- Calculate refund eligibility automatically
- Generate tax report showing all withholding tax deducted
- Income tax computation including interest and dividend income
- Export data for IRD filing
Tips to Minimize Withholding Tax Impact
- File your return on time — Don’t leave refund claims too late. The 30-month window can pass quickly.
- Keep all certificates — Request interest certificates from every bank where you hold deposits.
- Claim exemption if eligible — If your income is below Rs. 1,800,000, submit the self-declaration to avoid unnecessary deductions.
- Use TaxCalc LK — Track all deductions automatically throughout the year so you are prepared at filing time.
Start Tracking Your Tax — Download TaxCalc LK Free
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