Last Updated: July 2026 | This guide reflects the Inland Revenue Act No. 24 of 2017 (as amended by the Inland Revenue (Amendment) Act, No. 2 of 2025) and IRD Public Notice PN/IT/2025-01. Tax rates verified against IRD official publications.
What You'll Learn in This Definitive Tax Guide
Whether you're a salaried employee, freelancer, or business owner, understanding Sri Lanka's income tax system is essential for financial planning. This comprehensive guide—trusted by thousands of Sri Lankans—covers:
- Current tax brackets and rates for the active 2025/2026 assessment year
- Step-by-step calculations with real salary examples (Rs. 125K to Rs. 400K+)
- All qualifying deductions and how to claim the maximum Rs. 1,000,000
- APIT system explained — how your employer withholds tax each month
- Critical deadlines and how to avoid penalties
- 2025/2026 key changes effective from April 1, 2025
Why trust this guide? We reference the official Inland Revenue Department, the Inland Revenue Act, and IRD Public Notice PN/IT/2025-01.
Quick Summary: 2025/2026 Tax Year
| Key Information | Details |
|---|---|
| Tax Year | April 1, 2025 – March 31, 2026 |
| Tax-Free Threshold | Rs. 1,800,000 per year |
| Monthly Equivalent | Rs. 150,000 per month |
| Maximum Tax Rate | 36% |
| Filing Deadline | September 30, 2026 |
| Payment Deadline | September 30, 2026 |
These thresholds and rates are in force for the 2025/2026 year of assessment.
Understanding Tax Brackets
Sri Lanka uses a progressive tax system. Higher income is taxed at higher rates, but only the portion above each threshold.
The rates below apply to taxable income after subtracting:
- Personal relief (Rs. 1,800,000/year)
- EPF employee contribution (8% of gross salary)
- Qualifying payments (up to Rs. 1,000,000/year)
Current Tax Rates (2025/2026)
| Annual Taxable Income Slab | Tax Rate | Tax on Slab | Cumulative Tax |
|---|---|---|---|
| 0 - 10,00,000 | 6% | Rs. 60,000 | Rs. 60,000 |
| 10,00,001 - 15,00,000 | 18% | Rs. 90,000 | Rs. 1,50,000 |
| 15,00,001 - 20,00,000 | 24% | Rs. 1,20,000 | Rs. 2,70,000 |
| 20,00,001 - 25,00,000 | 30% | Rs. 1,50,000 | Rs. 4,20,000 |
| Above 25,00,000 | 36% | Varies | Varies |
(Rs. 10,00,000 = 1 million; Rs. 15,00,000 = 1.5 million; and so on.)
Visual Breakdown
Taxable Income Level Tax Rate
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
0 - 10,00,000 ▓░░░░░ 6%
10,00,000 - 15,00,000 ▓▓░░░░ 18%
15,00,000 - 20,00,000 ▓▓▓░░░ 24%
20,00,000 - 25,00,000 ▓▓▓▓░░ 30%
Above 25,00,000 ▓▓▓▓▓▓ 36%Real-World Examples
Example A: Entry-Level Professional
Situation: Kavindi is a marketing executive earning Rs. 125,000/month.
Calculation:
- Annual salary: Rs. 125,000 × 12 = Rs. 15,00,000/year (1.5 million)
- Less EPF (8%): Rs. 1,20,000
- Less personal relief: Rs. 1,800,000
- Taxable income: Rs. 0 (relief + EPF exceed salary)
Tax Calculation:
- Annual tax: Rs. 0
- Monthly tax: Rs. 0/month
Effective tax rate: 0%
Example B: Mid-Career Manager
Situation: Ruwan is an IT manager earning Rs. 250,000/month.
Calculation:
- Annual salary: Rs. 250,000 × 12 = Rs. 3,000,000
- Less EPF (8%): Rs. 240,000
- Less personal relief: Rs. 1,800,000
- Taxable income: Rs. 960,000
Tax Calculation:
| Slab | Amount | Rate | Tax |
|---|---|---|---|
| First 10,00,000 | Rs. 960,000 | 6% | Rs. 57,600 |
| Total | Rs. 57,600 |
Monthly tax: Rs. 57,600 ÷ 12 = Rs. 4,800/month
Effective tax rate: 1.92%
Example C: Senior Executive with Deductions
Situation: Dilshan earns Rs. 400,000/month and has:
- Life insurance premium: Rs. 100,000/year
- Health insurance: Rs. 80,000/year
- Housing loan interest: Rs. 250,000/year
Calculation:
- Annual salary: Rs. 400,000 × 12 = Rs. 4,800,000
- Less EPF (8%): Rs. 384,000
- Less qualifying payments: Rs. 430,000
- Less personal relief: Rs. 1,800,000
- Taxable income: Rs. 2,186,000
Tax Calculation:
| Slab | Amount | Rate | Tax |
|---|---|---|---|
| First 10,00,000 | Rs. 10,00,000 | 6% | Rs. 60,000 |
| Next 5,00,000 | Rs. 5,00,000 | 18% | Rs. 90,000 |
| Next 5,00,000 | Rs. 5,00,000 | 24% | Rs. 1,20,000 |
| Remaining | Rs. 1,86,000 | 30% | Rs. 55,800 |
| Total | Rs. 3,25,800 |
Monthly tax: Rs. 3,25,800 ÷ 12 = Rs. 27,150/month
Effective tax rate: 6.79%
Without deductions, taxable income would be Rs. 2,616,000 and tax would be Rs. 4,61,760. Savings: Rs. 1,35,960.
Tax Deductions You Can Claim
Summary of Qualifying Payments
| Deduction Type | Maximum Limit | Notes |
|---|---|---|
| Life Insurance | Rs. 100,000 | On self, spouse, or children |
| Health Insurance | Rs. 100,000 | Medical insurance premiums |
| Housing Loan Interest | Rs. 300,000 | Primary residence only |
| Government Donations | Unlimited | Schools, hospitals |
| Charity Donations | Rs. 75,000 | Approved charities only |
| Solar Panel Installation | Rs. 600,000 | Can carry forward |
| Total Cap | Rs. 1,000,000 | Maximum combined deductions |
How EPF Works
Your EPF (8% employee contribution) is automatically deducted before calculating taxable income. You don't need to claim it separately.
Example: Rs. 200,000 salary
- EPF deduction: Rs. 16,000
- Remaining for tax calculation: Rs. 184,000
👉 Learn more: EPF & ETF Tax Benefits Guide
APIT: How Your Employer Deducts Tax
APIT (Advanced Personal Income Tax) is the system where your employer withholds tax from your salary each month.
How APIT Works
- Employer estimates your annual income
- Applies tax brackets to calculate annual tax
- Divides by 12 for monthly deduction
- Remits to IRD by the 15th of the following month
APIT Monthly Brackets (2025/2026)
| Monthly Salary (Rs.) | Tax Rate |
|---|---|
| 0 - 150,000 | 0% |
| 150,001 - 233,333 | 6% |
| 233,334 - 316,667 | 18% |
| 316,668 - 400,000 | 24% |
| 400,001 - 483,333 | 30% |
| 483,334+ | 36% |
These bands are the IRD monthly APIT withholding thresholds published under PN/IT/2025-01. The first band reflects the monthly personal relief of Rs. 150,000.
What to Check on Your Payslip
- Gross Salary: Your full salary before deductions
- EPF (8%): Employee contribution to provident fund
- APIT: Tax amount deducted
- Net Salary: Amount you receive
Common APIT Issues
| Problem | Cause | Solution |
|---|---|---|
| Too much tax deducted | Employer overestimated income | Submit Form T10 with deductions |
| Too little deducted | Multiple jobs or freelance income | File return and pay difference |
| Wrong calculations | Outdated tax tables | Report to HR department |
👉 Learn more: APIT Explained in Detail
Filing Your Tax Return
Who Must File?
You must file a return if:
- ✅ Total income exceeds Rs. 1,800,000/year
- ✅ You have income from multiple sources
- ✅ You have rental income
- ✅ You have capital gains
- ✅ You want to claim a refund
- ✅ IRD sends you a notice
You don't need to file if:
- ❌ Only have employment income below threshold
- ❌ APIT covers all your tax liability
- ❌ No other income sources
Important Deadlines
| Deadline | Action | Penalty for Missing |
|---|---|---|
| September 30 | File return & pay tax | Rs. 50,000 + interest |
| Ongoing | Keep records for 5 years | Audit complications |
How to File
- Register for TIN at ird.gov.lk
- Login to the e-Services portal
- Complete Form T1 (Individual Return)
- Attach supporting documents
- Submit electronically
- Pay any balance via bank transfer
Tax Planning Tips
Maximize Your Deductions
- Review insurance – Are you claiming life and health premiums?
- Housing loan – Interest up to Rs. 300,000 is deductible
- Donations – Government donations are unlimited
- Solar panels – Big deduction if you install them
Timing Strategies
- Pay annual insurance premiums before March 31
- Make donations before year-end
- Submit Form T10 early for adjusted APIT
Multiple Income Sources
If you have:
- Freelance income
- Rental income
- Interest income
- Business income
You must file a return and may need to pay quarterly installments.
Common Mistakes to Avoid
| Mistake | Impact | Prevention |
|---|---|---|
| Not filing when required | Rs. 50,000 penalty | Check filing requirements |
| Missing payment deadline | 20% penalty + interest | Pay by September 30 |
| Not claiming deductions | Overpaying tax | Submit Form T10 to employer |
| Wrong TIN | Return rejected | Double-check your number |
| Not keeping records | Audit problems | Save all documents 5 years |
Key Changes for 2025/2026
The active 2025/2026 tax year introduced the following from April 1, 2025:
| Change | 2025/2026 Value |
|---|---|
| Tax-free threshold | Rs. 1,800,000/year |
| First tax slab | Up to Rs. 10,00,000 taxable @ 6% |
| Second tax slab | Rs. 10,00,001 - 15,00,000 @ 18% |
| Third tax slab | Rs. 15,00,001 - 20,00,000 @ 24% |
| Fourth tax slab | Rs. 20,00,001 - 25,00,000 @ 30% |
| Top rate | Above Rs. 25,00,000 @ 36% |
Impact: Lower tax for most employees. Someone earning Rs. 150,000/month pays zero tax after EPF and personal relief.
Official Resources
- Inland Revenue Department: ird.gov.lk
- IRD Public Notice PN/IT/2025-01: IRD Notices
- Inland Revenue (Amendment) Act, No. 2 of 2025: Parliament.lk
- Budget 2025 Proposals: treasury.gov.lk
- Inland Revenue Act No. 24 of 2017: Parliament.lk
Calculate Your Tax Now
Don't guess your tax liability. Use our free calculator for accurate results.
Enter your income, deductions, and get:
- Exact tax amount
- Monthly breakdown
- Tax bracket visualization
- Comparison with/without deductions
Related Guides
- APIT Explained: How Employer Tax Deduction Works
- Tax Deductions in Sri Lanka 2026
- Expat & Remote Worker Tax Guide
- EPF & ETF Tax Benefits
Frequently Asked Questions
"Do I pay tax on my entire salary?"
No. Only the amount above Rs. 1,800,000/year (plus your 8% EPF) is taxed. The first Rs. 1,800,000 is the personal relief or tax-free threshold.
"Is EPF contribution taxed?"
No. Your 8% EPF contribution is automatically deducted before calculating taxable income. Learn more in our EPF & ETF Tax Benefits Guide.
"Can I get a refund if I overpaid?"
Yes. File your annual return through the IRD e-Services portal and apply for a refund. Processing typically takes 3-6 months.
"What if I changed jobs mid-year?"
Get your APIT certificate (Form T2) from your old employer and provide it to your new employer for correct calculations. Read our detailed APIT Explained Guide for the full process.
"I earn from freelancing and salary. How am I taxed?"
Both income sources are combined for tax calculation. You must file an annual return and may need to pay quarterly installments. See our Expat & Remote Worker Tax Guide for more details.
"What happens if I don't file my return?"
You face a penalty of Rs. 50,000 plus monthly interest on unpaid tax. The IRD can also issue assessments based on their estimates, which may be higher than your actual liability.
Read: Related Guides
This article is part of our comprehensive Tax Education Hub. Explore related topics:
| Guide | What You'll Learn | Read Time |
|---|---|---|
| APIT Explained | How employer tax deductions work | 12 min |
| Tax Deductions 2026 | Maximize your Rs. 1M deduction cap | 10 min |
| Expat & Remote Worker Tax | 183-day rule, foreign income | 11 min |
| EPF/ETF Tax Benefits | Triple tax advantage explained | 9 min |
Disclaimer
This guide is for educational purposes and reflects tax laws as of July 2026. Tax rules change frequently. Always verify with the Inland Revenue Department or consult a qualified tax professional for advice specific to your situation.
Last Updated: July 1, 2026
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