Sri Lanka Personal Income Tax Guide 2026

Overview — Inland Revenue Department (IRD)

The Inland Revenue Department (IRD) of Sri Lanka administers all national taxes. Every taxpayer is assigned a Taxpayer Identification Number (TIN). Sri Lanka operates a PAYE (Pay As You Earn) system for salaried employees, where employers deduct tax at source. Self-employed individuals file a return under the self-assessment system. The tax year (Year of Assessment) runs from 1 April to 31 March. Tax returns are due by 30 November following the end of the tax year (or earlier for certain categories). Sri Lanka taxes residents on worldwide income; non-residents are taxed only on Sri Lankan-source income.

Personal Allowance — LKR 1.5 Million

Every resident individual is entitled to a personal allowance (tax-free threshold) of LKR 1.5 million per tax year. Some sources reference a potential increase to LKR 1.8 million under proposed amendments. This allowance is deducted from total assessable income before applying the progressive brackets. There is no separate standard deduction; the personal allowance serves this purpose. The allowance is available to all resident individuals regardless of age or employment status.

Progressive IIT Rates — 6% to 36%

Sri Lanka's progressive income tax brackets for 2026 are as follows:

• 6% — on taxable income from LKR 0 to LKR 3,000,000 (after personal allowance)
• 12% — on taxable income from LKR 3,000,001 to LKR 6,000,000
• 18% — on taxable income from LKR 6,000,001 to LKR 9,000,000
• 24% — on taxable income from LKR 9,000,001 to LKR 15,000,000
• 30% — on taxable income from LKR 15,000,001 to LKR 30,000,000
• 36% — on taxable income exceeding LKR 30,000,000

The brackets apply to the marginal slice of income. For example, an individual with taxable income of LKR 10 million after the personal allowance pays 6% on the first LKR 3 million, 12% on the next LKR 3 million, 18% on the next LKR 3 million, and 24% on the remaining LKR 1 million.

PAYE (Pay As You Earn) System

Employers in Sri Lanka are required to deduct income tax from employees' salaries under the PAYE (Pay As You Earn) system. Tax is deducted monthly based on cumulative earnings and the applicable tax brackets. Employers must remit the deducted tax to the IRD by the 15th of the following month. At the end of the tax year, employees may need to file a return if they have additional income or if their total tax withheld does not match their final liability. The PAYE system also covers pension income.

Qualifying Payments and Deductions

Taxpayers may claim deductions for the following qualifying payments, subject to limits:

• Pension contributions: Contributions to approved pension or provident funds (including EPF) are deductible up to a specified limit
• Life insurance premiums: Premiums paid on qualifying life insurance policies are deductible
• Medical insurance: Premiums for qualifying health insurance policies
• Medical expenses: Certain medical expenses for the taxpayer and dependents may be deductible

Deductions are generally capped as a percentage of assessable income or at a fixed monetary limit. These qualifying payments reduce the taxable income before the progressive rates are applied.

Taxpayer Identification Number (TIN)

Every taxpayer in Sri Lanka must obtain a Taxpayer Identification Number (TIN) from the IRD. The TIN is a unique 10-digit number used for all tax-related transactions, including filing returns, making payments, and corresponding with the IRD. Employers must report the TIN of each employee in PAYE filings.

Deductions for Donations

Donations made to approved charitable institutions registered with the IRD are deductible from taxable income. The deduction is typically limited to a percentage of assessable income (commonly up to 25% or a prescribed limit). Donors must obtain a receipt from the approved charity to support the claim.

FAQs

What is the tax year in Sri Lanka?

The Year of Assessment runs from 1 April to 31 March. For the 2025/2026 tax year, the return is due by 30 November 2026.

Is joint filing available for married couples?

No, Sri Lanka does not allow joint filing. Each individual files separately and is entitled to their own personal allowance.

How is foreign income taxed for residents?

Residents are taxed on worldwide income. Foreign tax credits may be available for taxes paid abroad, subject to the terms of applicable double tax treaties.

Disclaimer

This guide provides general information about Sri Lankan personal income tax for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified Sri Lankan tax advisor or the Inland Revenue Department directly for advice specific to your situation. InvestmentKit does not provide tax advice.