Sri Lanka Tax Deductions 2026

Last Updated: September 2026 | Based on the Inland Revenue Act No. 24 of 2017 (as amended), the IRDInland Revenue Department — Sri Lanka's tax authority Y/A 2025/26 individual return guide, and IRD Guidelines.

What Are Tax Deductions in Sri Lanka?

Your taxable income is what the progressive rates apply to. It is computed in two steps on the annual return:

→ See your reliefs applied: Income Tax Calculator

1. Assessable income − reliefs − qualifying payments = taxable income
2. Reliefs reduce income before qualifying payments; qualifying payments (QPs) are the itemized deductions listed in Schedule 5 of the individual return.

Simple example:

• Your income: Rs. 3,000,000
• Personal relief: Rs. 1,800,000
• Taxable income: Rs. 1,200,000

You only pay tax on Rs. 1,200,000 instead of Rs. 3,000,000.

Important correction: there is no combined "Rs. 1 million" deduction cap and no deduction for life/health insurance or housing-loan interest under the Y/A 2025/26 return structure. The older deduction schedule was replaced — claims of those deductions circulating online are out of date.

Reliefs (Before Qualifying Payments)

1. Personal Relief — Rs. 1,800,000/year

• Automatic for resident individuals — no claim needed.
• Worth Rs. 150,000/month of tax-free income.
• Non-residents do not receive personal relief.

2. Rent Relief — 25% of Investment Rental Income

If you earn investment rental income (letting out property as an investment), the return grants relief of 25% of that rental income (or actual eligible expenses where the return schedule requires them).

Example: Rs. 480,000 annual rent → Rs. 120,000 relief.

3. Solar Relief — Up to Rs. 600,000/year

Relief on actual qualifying expenditure for grid-connected solar installations — available to resident individuals, capped at Rs. 600,000 per year.

• Based on expenditure you actually incurred in the year
• Keep installation invoices and grid-connection documentation

Schedule-5 Qualifying Payments

Charity Donations to Approved Charities

Cap: the lowest of —

1. The amount you actually donated
2. Rs. 75,000
3. One-third of your taxable income (computed before qualifying payments)

Worked example:

• Taxable income before QPs: Rs. 1,200,000 → one-third = Rs. 400,000
• You donated Rs. 100,000 to an approved charity
• Deductible QP: Rs. 75,000 (the lowest of 100,000 / 75,000 / 400,000)

Only donations to charities approved by the IRDInland Revenue Department — Sri Lanka's tax authority qualify — keep the receipt.

Other Schedule-5 Qualifying Payments

Schedule 5 of the individual return enumerates the remaining qualifying payments. Enter them as documented on your return — each has its own conditions and evidence requirements in the IRD return guide. Do not assume a payment qualifies just because it feels like an expense.

Quick Reference Table

What About EPF?

Your EPFEmployees' Provident Fund — mandatory retirement savings fund for private-sector workers contribution (8% of salary) is a payroll deduction:

• It reduces your take-home pay — it does not reduce taxable income
• APITAdvance Personal Income Tax — income tax withheld on employment income Table 01 computes monthly withholding on employment profits without deducting EPFEmployees' Provident Fund — mandatory retirement savings fund for private-sector workers
• You do not claim it anywhere on the return

👉 Read more: EPF/ETF Tax Benefits Guide

Common Deduction Myths — What You CANNOT Claim

These are not deductible under the Y/A 2025/26 return structure:

• ❌ Life insurance premiums
• ❌ Health / medical insurance premiums
• ❌ Housing-loan interest
• ❌ Education-loan interest
• ❌ Rent payments for your own home (rent relief is for landlords' rental income)
• ❌ School fees, groceries, vehicle loan interest, credit card interest
• ❌ EPFEmployees' Provident Fund — mandatory retirement savings fund for private-sector workers contributions (payroll deduction, not a tax deduction)

If an older article lists these as deductible, it predates the current return structure.

How to Claim

For Employees

1. Submit proof of qualifying payments to your employer (Form T10 process)
2. Employer adjusts your APITAdvance Personal Income Tax — income tax withheld on employment income withholding where the tables allow
3. Claim the balance on your annual return

Documents to keep:

• Approved-charity donation receipts
• Solar installation invoices + grid-connection papers
• Rental income documentation

When Filing Your Return

1. List reliefs and qualifying payments in the return's Schedule 5
2. Attach or retain proof documents (5 years)
3. Taxable income is computed automatically — pay any balance or claim a refund

Example: Full Calculation

Your situation:

• Annual employment income: Rs. 3,000,000
• Approved charity donations: Rs. 100,000
• Solar installation expenditure: Rs. 800,000 (resident)

Calculation:

1. Gross income: Rs. 3,000,000
2. Less personal relief: Rs. 1,800,000
3. Less solar relief (capped): Rs. 600,000
4. Less charity QP: Rs. 75,000 (cap binds — donation Rs. 100,000 > Rs. 75,000)
5. Taxable income: Rs. 525,000

Tax on Rs. 525,000:

• First Rs. 525,000 × 6% = Rs. 31,500

Without reliefs/QPs, taxable income would be Rs. 1,200,000 → tax Rs. 96,000. You save Rs. 64,500.

Key Takeaways

✅ Taxable income = income − reliefs − Schedule-5 qualifying payments ✅ Personal relief Rs. 1.8M (residents); rent relief 25%; solar ≤Rs. 600k/yr ✅ Charity QP cap = lower of donation / Rs. 75,000 / ⅓ of taxable income ✅ EPFEmployees' Provident Fund — mandatory retirement savings fund for private-sector workers is a payroll deduction — never a tax deduction ✅ No combined Rs. 1M cap; no insurance/housing-loan deductions under the current return

Calculate Your Savings

Use our Income Tax Calculator to see how reliefs and qualifying payments affect your tax.

👉 Related: Complete Income Tax Guide

Frequently Asked Questions

"Can I claim deductions from previous years?"

No. Qualifying payments and reliefs must arise within the tax year (April 1 – March 31) to be claimed for that year.

"Do I need to submit proof for every deduction?"

Yes. Keep all receipts, donation acknowledgments, solar invoices, and bank certificates for at least 5 years — the IRDInland Revenue Department — Sri Lanka's tax authority may request verification during assessment.

"Can my spouse claim the same qualifying payment?"

No. Each qualifying payment can only be claimed by one taxpayer — allocate donations between spouses where it makes sense.

"Is there a total cap on all deductions combined?"

No. Each item has its own cap (Rs. 1.8M personal relief, 25% rent relief, Rs. 600k solar, charity per the three-way limit). There is no single combined ceiling under the Y/A 2025/26 return structure.

Read: Related Guides

Official Resources

• Inland Revenue Department: ird.gov.lk
• IRDInland Revenue Department — Sri Lanka's tax authority Tax Forms (T10): Income Tax Forms
• Inland Revenue Act: Parliament.lk

Disclaimer

This guide is for educational purposes. Tax laws change and individual circumstances vary. Consult the IRD or a tax professional for personalized advice.

Last Updated: September 28, 2026

Sources:

• Inland Revenue Act No. 24 of 2017 (as amended)
• IRD Tax Chart 2024/2025
• IRD Tax Chart 2025/2026