PAYE vs APIT: what changed for Sri Lankan employers

Last verified against the primary sources on 15 October 2026.

Many Sri Lankan employers still say "PAYE deductions" when they mean APIT (Advance Personal Income Tax). Payroll software still labels the module PAYE, and the Inland Revenue Department's (IRD) own website keeps a PAYE page that links to the APIT tables, the APIT annual statement and the T-10 certificate [1]. The mechanics look similar: the employer deducts tax from salary and pays it to the IRD. But the threshold, bands, declarations and the employer's liability have changed enough that running APIT on PAYE habits produces errors.

This guide covers the differences that matter for payroll today.

What PAYE was

Pay As You Earn was the employer withholding scheme on employment income before APIT. The employer deducted tax from salary each month and paid it to the IRD by the 15th of the following month, and furnished an annual statement by 30 April [1]. PAYE-era reliefs and rates are not covered here; do not use them for current payroll.

When APIT came in

APIT is withheld under section 83A of the Act. Section 83A(1) covered APIT from 1 April 2020 to 31 December 2022, and a new subsection (1A) inserted by Act No. 45 of 2022 provides that "An employer shall deduct the Advance Personal Income Tax with effect from January 1, 2023" [2]. The IRD's notice of December 2022 confirmed that deduction of APIT is mandatory from 1 January 2023 [3].

Today's Table 01 instructions put it plainly: the deduction "must be made compulsorily, regardless of the employee's consent" [4].

APIT is an advance payment

APIT is credited against the employee's income tax for the year of assessment. If the employee has other income, they file a return and settle any balance. But since 1 April 2025 an individual whose only income is employment income fully subject to APIT does not need to file a return [5].

For the employer, the position is direct. An employer that fails to withhold must pay the tax in the same manner and at the same time as if it had been withheld (s.86(3)), and may recover it from the employee (s.86(6)) [6].

Threshold: from Rs 100,000 to Rs 150,000

The relief has not been constant since 2020. Act No. 45 of 2022 records Rs 3,000,000 a year for years of assessment from 1 January 2020 to 31 March 2022; for the year from 1 April 2022, Rs 2,250,000 for the first nine months and Rs 300,000 for the last three; and Rs 1,200,000 a year from 1 April 2023 [2]. In monthly terms that is Rs 250,000 to December 2022 and Rs 100,000 from January 2023. From 1 April 2025 the tables use Rs 150,000 a month, Rs 1,800,000 a year [4].

An employee earning Rs 120,000 a month was taxed from January 2023 to March 2025. From 1 April 2025, that employee is below the threshold. An employer still deducting from staff earning between Rs 100,000 and Rs 150,000 is over-deducting.

Bands: how the rates evolved

From 1 April 2023 to 31 March 2025: six bands of 6, 12, 18, 24, 30 and 36 percent above Rs 1,200,000 [2].

From 1 April 2025 (Table 01, primary employment):

These are the Y/A 2025/26 tables [4]. The Commissioner-General's notice at the front of the set says they apply to every later year of assessment unless other tables are specified [7].

Declarations: what they decide now

The employee's declaration no longer decides whether tax is deducted. It decides which table the employer uses:

• Primary Employment Declaration: given by the employee to the primary employer, which then deducts on Table 01 from regular pay (Circular SEC/2025/E/01 para 8) [8]. An employee has one primary employment at a time.
• Second employment: a secondary employer uses Table 07. It applies one rate from Table 7.1 on its payment, chosen by the employee's declared primary employment income, from nil where combined monthly income is under Rs 150,000 up to 36 percent [9].

An employee who has not given a primary employment declaration is also taxed on Table 07, and if primary employment income is not disclosed the employer applies the highest rate, 36 percent [9]. That is a heavy deduction for a low earner, so collect the declaration on day one. When none is received, apply Table 07; do not assume no tax is due.

Certificates and the annual statement

The T-10. The certificate of income tax deductions the employer gives each employee, shown on the IRD's PAYE page as "Certificate of Income Tax Deductions" [1]. Serve it on employees still employed by 30 April after the year, and on a leaver within 30 days after the employment ends (s.87(4)) [6]. Since Act No. 11 of 2026 it must be free of any charge (new s.87(6)) [10].

The Annual Statement of Employer (Asmt_APIT_001). The employer's own return, due within thirty days after 31 March, so by 30 April (s.86(2)) [6], filed electronically, with three schedules [11]:

• Schedule 01: employees whose APIT was deducted on remuneration other than once-and-for-all payments, with each employee's TIN
• Schedule 02: once-and-for-all payments (terminal benefits) only
• Schedule 03: employees below the threshold whose APIT was not deducted

See the APIT annual statement and T-10 guide for the filing steps.

Payment deadline: unchanged

APIT is paid to the Commissioner-General within fifteen days after the end of each month, in practice by the 15th of the following month (s.86(1)) [6], the same date the PAYE page gave [1]. The APIT circular describes payment at Bank of Ceylon branches; online payment is through IRD e-Services [8].

The consequences of getting it wrong:

• Failure to deduct: the employer pays the tax and may recover it from the employee (s.86(3) and (6)) [6]
• Late payment: a penalty of 20 percent of the tax due but not paid under section 179(1) if the tax is still unpaid fourteen days after the due date [6] [12], plus interest at 1.5 percent a month or part of a month under section 159(1) [6]. A late income tax instalment carries 10 percent under section 179(2) instead [6]
• Annual statement: up to Rs 200,000 a year of assessment under new s.178A for not following the specified procedures, formats and forms, if a warning is not complied with within 14 days; not filing at all is an offence under new s.185A [10]

Why the confusion persists

Payroll systems. Many packages still label the employment tax module "PAYE" while calculating APIT. The label is old; the calculation may be right.

Habits from before 2020. Payroll staff trained on PAYE carry its rules forward because the mechanics look similar.

The IRD website. The PAYE page and the APIT tables page sit in different sections, and the PAYE page was last updated in 2021 [1]. Use the current APIT tables page for rates.

Lump sums and terminal benefits. Bonuses go through Table 02 [13], and gratuity and other once-and-for-all payments through Table 03 [14]. Employers still using PAYE-era methods for these may be applying the wrong rates.

Practical checklist for employers

• Payroll runs the Y/A 2025/26 APIT tables, which still apply for 2026/27
• The monthly tax-free amount is set to Rs 150,000
• Every employee has a Primary Employment Declaration on file or is taxed on Table 07
• Bonuses and other lump sums go through Table 02; gratuity and other terminal benefits through Table 03
• Non-cash benefits are included at their fair market value [4]
• T-10s go to every employee by 30 April and to leavers within 30 days
• The annual statement is filed electronically by 30 April, with TINs in Schedule 01

Talk to us. If your payroll still runs on PAYE-era settings, our payroll team can review it against the current APIT tables with you; book a consultation at our contact page.

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

Related: APIT registration guide for Sri Lankan employers (formerly PAYE).

References

1. Inland Revenue Department. Pay As You Earn (PAYE) web page (last updated 30 March 2021), payment and annual statement dates and certificate link. https://www.ird.gov.lk/en/Type%20of%20Taxes/SitePages/Pay%20As%20You%20Earn%20%28PAYE%29.aspx?menuid=1202 . Primary. Accessed 15 October 2026.

1. Parliament of Sri Lanka. Inland Revenue (Amendment) Act, No. 45 of 2022, s.15 (s.83A(1) and (1A)), s.33 (First Schedule para 1(1C)) and s.36 (Fifth Schedule para 2(a)). https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IR_Act_No._45_2022_E.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Public notice PN/IT/2022-03 (15 December 2022), para 1. https://www.ird.gov.lk/en/Lists/Latest%20News%20%20Notices/Attachments/479/PN_IT_2022-03_15122022_E.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. APIT Tax Table 01, Y/A 2025/26, instructions and summary table. https://www.ird.gov.lk/en/publications/APIT_Tax_Tables/2025-2026/Table%20-%201/02.%20APIT_2526_Table_01_Text.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Public notice SEC/PN/IT/2026/02 on Act No. 11 of 2026, item 12. https://www.ird.gov.lk/en/Lists/Latest%20News%20%20Notices/Attachments/794/SEC_PN_IT_2026-02_E.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Inland Revenue Act, No. 24 of 2017, consolidated, ss.86(1) to (3) and (6), 87(4), 159(1) and 179. https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IRA_Cons_Act_-_2025_Changes.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. APIT Tax Tables Y/A 2025/26, Index and Commissioner-General's notice. https://www.ird.gov.lk/en/publications/APIT_Tax_Tables/2025-2026/Index/01.%20APIT_2526_Index.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Circular SEC/2025/E/01, Guideline for employers on deducting APIT (25 March 2025), paras 8 and 10. https://www.ird.gov.lk/en/publications/Circulars_Circulars/SEC_2025_E_01_E.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. APIT Tax Table 07, Y/A 2025/26, instructions and Table 7.1. https://www.ird.gov.lk/en/publications/APIT_Tax_Tables/2025-2026/Table%20-%207/08.%20APIT_2526_Table_07_Text.pdf . Primary. Accessed 15 October 2026.

1. Parliament of Sri Lanka. Inland Revenue (Amendment) Act, No. 11 of 2026, s.15 (new s.87(6)), new ss.86(9), 178A and 185A. 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. Instructions to complete the APIT Annual Statement, Y/A 2025/2026, e-filing and Schedules 01 to 03. https://www.ird.gov.lk/en/Downloads/Other_PAYE_Doc/Asmt_APIT_Guide_2025_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.

1. Inland Revenue Department. APIT Tax Table 02, Y/A 2025/26, instructions. https://www.ird.gov.lk/en/publications/APIT_Tax_Tables/2025-2026/Table%20-%202/03.%20APIT_2526_Table_02_Text.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. APIT Tax Table 03, Y/A 2025/26, once-and-for-all payments. https://www.ird.gov.lk/en/publications/APIT_Tax_Tables/2025-2026/Table%20-%203/04.%20APIT_2526_Table_03_Text.pdf . Primary. Accessed 15 October 2026.