How to calculate income tax in Sri Lanka: a worked example

Last verified against the primary sources on 15 October 2026.

Most people in Sri Lanka find out what they owe in income tax at the wrong time: at year-end, when the number is already fixed. An estimate early in the year lets you plan around it rather than react to it.

Quick answer: For Y/A 2025/26, subtract the LKR 1,800,000 personal relief from your income and apply the five progressive rates (6%, 18%, 24%, 30%, 36%) to what is left [1]. The Sri Lanka income tax calculator and the personal income tax calculator follow the same steps.

Who this estimate is for

The method below is for:

• Resident individuals with employment income, business income, or investment income for Y/A 2025/26
• Self-employed professionals estimating quarterly instalment obligations
• Business owners and directors modelling personal tax alongside corporate tax
• Finance managers and HR teams cross-checking APIT deductions against actual year-end liability

It does not replace a full tax return. It gives you a working estimate based on current law, so you know where you stand before the return is due.

The 2026 income tax framework

The Inland Revenue (Amendment) Act No. 2 of 2025, effective 1 April 2025, changed both the personal relief amount and the slab structure [2]. Any calculator or payroll system using pre-April 2025 rates produces wrong numbers. Act No. 11 of 2026 did not change the relief or the bands, so they also apply for Y/A 2026/27 [3].

Personal relief for Y/A 2025/26

Resident individuals receive a personal relief of LKR 1,800,000 per year of assessment [1]. This amount is deducted from assessable income before any rate is applied.

If your annual income is LKR 1,800,000 or below, your income tax liability is zero.

The five-band rate structure

These bands apply to taxable income, which is income minus personal relief and any other allowable deductions [1].

How to estimate your income tax, step by step

Step 1: Start from your gross income

Take your annual gross income in LKR. For employed individuals, use the figure on your payslips or on the tax deduction certificate your employer issues, before APIT deductions. For business owners, use net profit before personal drawings.

Step 2: Check your residency status

The LKR 1,800,000 personal relief is available to residents and to non-residents who are Sri Lankan citizens. Non-residents who are not citizens get no personal relief, so the progressive rates apply from the first rupee of Sri Lanka-source taxable income [1].

Step 3: Add qualifying payments (if applicable)

Qualifying payments reduce taxable income. Donations to approved charitable institutions providing care for the sick or needy are capped at one-third of taxable income or LKR 75,000, whichever is lower; donations to the Government of Sri Lanka and other bodies listed in the Fifth Schedule are not subject to that cap [1]. Relief for contributions to pension funds was available only for a limited period ending in December 2022, so do not include it for Y/A 2025/26. See income tax relief in 2026 for the full list.

If you are unsure which deductions apply, leave them out for a conservative estimate.

Step 4: Work out the breakdown

1. Taxable income: gross income minus personal relief and deductions
2. Tax on each band: the amount of tax payable at each rate
3. Total estimated tax: your full year liability
4. Monthly equivalent: useful for checking whether your employer's APIT deduction is tracking correctly

Step 5: Compare with APIT deductions

If you are an employee, your employer deducts APIT (Advance Personal Income Tax) each month. The monthly equivalent figure lets you check whether cumulative APIT matches your projected annual liability. A significant gap means either your employer is under-deducting (you owe a balance at filing) or over-deducting (you are due a refund).

Worked example: Y/A 2025/26

Scenario: A resident individual earns LKR 3,600,000 gross annual income from employment. No additional qualifying deductions.

If the employer is deducting LKR 15,000 a month in APIT, there will be a LKR 42,000 shortfall at year-end. You can either ask HR to adjust the deduction or set aside the difference.

Common mistakes to avoid

Using the wrong personal relief figure. The pre-April 2025 relief was LKR 1,200,000. Many online tools and older payroll systems still use this figure. The current relief is LKR 1,800,000. Using the wrong number adds LKR 600,000 to your taxable income and inflates your estimated liability by up to LKR 216,000 a year (LKR 600,000 at the 36% top rate).

Ignoring non-employment income. If you earn rental income, dividend income, or interest income in addition to a salary, all of it counts toward your income tax calculation. Include every source for a combined estimate.

Treating APIT as a final tax. APIT is an advance payment. Your actual liability is settled in the income tax return, due by 30 November [4]. If you have only employment income fully covered by APIT, plus interest of up to LKR 5,000, you do not need to file a return [3]. If total APIT paid exceeds actual liability, you claim a refund. If it falls short, pay the balance by the final payment date (30 September 2026 for Y/A 2025/26) [4]. Tax paid late attracts a penalty of 20% of the tax due but not paid under section 179 [1] [5], plus interest at 1.5% for each month or part month under section 159(1) [1]. A late quarterly instalment carries 10% under section 179(2) instead [1].

Corporate income tax: a different calculation

The method above is for individuals. Companies pay corporate income tax at different rates [1]:

• Standard rate: 30%
• 45%: betting and gaming, liquor and tobacco
• 15%: qualifying gains and profits from services used outside Sri Lanka and paid in foreign currency, and foreign-source income remitted through a bank

There is no SME rate. For a first pass, use the corporate tax calculator. A corporate tax computation involves adjustments for capital allowances, disallowed expenses, and carry-forward losses that go beyond a simple estimate; see our corporate income tax guide.

Filing deadlines for Y/A 2025/26

Dates are from the IRD Tax Calendar 2026 [4].

A late return attracts a penalty under section 178 of the greater of 5% of the tax owing plus 1% for each month or part month, and LKR 50,000 plus LKR 10,000 for each month or part month, capped at LKR 400,000 a return [1].

Related: Sri Lanka income tax bands for 2026: rates, slabs, and worked examples.

When to involve a tax professional

An estimate works well for straightforward employment income. The number becomes less reliable when you have:

• Multiple income sources (employment + rental + business)
• Carry-forward losses from a prior year
• Foreign-source income with potential double-taxation relief
• Income from partnerships or trusts

In those situations, the estimate is a starting point for a full computation.

Talk to us. If your estimate raises questions about your APIT deductions, your filing obligations or your overall tax position, our tax team can work through the full computation with you; book a consultation at our contact page.

WinCore Pvt Ltd

This guide is general information on the law as at 15 October 2026 and is not advice on your specific situation.

References

1. Inland Revenue Department. Inland Revenue Act, No. 24 of 2017, consolidated, ss.157, 159, 178, 179, First Schedule and Fifth Schedule. https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IRA_Cons_Act_-_2025_Changes.pdf . Primary. Accessed 15 October 2026.

1. Parliament of Sri Lanka. Inland Revenue (Amendment) Act, No. 2 of 2025, operative 1 April 2025, personal relief and individual rates. https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IR_Act_No_02-2025_E.pdf . Primary. Accessed 15 October 2026.

1. Parliament of Sri Lanka. Inland Revenue (Amendment) Act, No. 11 of 2026, certified 3 June 2026, s.19 (returns not required from APIT-only employees). https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IR_Act_No_11-2026_E.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Tax Calendar 2026, final payment and return for Y/A 2025/26, instalment dates and 30 April annual statements. https://www.ird.gov.lk/en/publications/Tax%20Calendar_Documents/Tax_Calendar_2026_E.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Guide to the Return of Income Tax, Y/A 2025/26, Section 09, penalty of 20 percent of tax due but not paid, 10 percent on a late instalment, interest at 1.5 percent a month or part of a month. https://www.ird.gov.lk/en/Downloads/IT_Individuals_Doc/Asmt_IIT_004_2025_2026_E.pdf . Primary. Accessed 15 October 2026.