SET form abolished in Sri Lanka: how quarterly income tax instalments work from 2026/27

Last verified against the primary sources on 15 October 2026.

The Statement of Estimated Tax (SET) was the mechanism Sri Lanka used to set quarterly income tax instalments. Under sections 90 to 92 of the Inland Revenue Act No. 24 of 2017, an instalment payer filed a forward-looking estimate of its current-year tax liability, then paid that estimate across four quarterly due dates. From Y/A 2026/2027 onwards, that mechanism no longer applies.

The Inland Revenue (Amendment) Act No. 11 of 2026 discontinued the SET [1]. Quarterly instalments continue, but you now work each one out with a formula in section 90(3), as amended by section 16 of the Act: (A minus C) divided by B, where A is the tax payable for the previous year of assessment, B is the number of instalments left, and C is the instalments already paid plus tax withheld from your income during the year [1]. The IRD's Circular SEC/2026/E/06 (Re-Revised) of 12 August 2026 sets out the method [2].

This change affects every company, partnership, and individual who is an instalment payer. If you manage quarterly tax payments for a Sri Lankan entity, this article covers what changed, what stayed the same, how to calculate your Y/A 2026/2027 instalments, and where the residual compliance exposure now sits.

What the SET was and why it existed

The Statement of Estimated Tax (SET) was an annual filing under section 91 of the Inland Revenue Act No. 24 of 2017. An instalment payer submitted an estimate of its current-year income tax liability, then used that estimate as the basis for four quarterly instalment payments across the year of assessment.

The SET gave the Inland Revenue Department advance visibility of expected tax collections while also giving taxpayers control over their own instalment amounts. If current-year trading was expected to be lower than the previous year, because of a one-off prior-year gain, a cyclical downturn, or a structural cost increase, a taxpayer could file a reduced estimate and pay lower quarterly amounts, provided the estimate was reasonable and defensible.

The mechanism under section 90(3) translated the estimate into an instalment formula: each payment equalled the remaining estimated tax divided by the number of remaining instalments. This created a self-adjusting schedule where later quarters could be recalibrated if trading changed materially.

For new companies with no prior-year tax history, the SET was the only available basis for establishing quarterly payments. Established companies used it to plan cash outflows and avoid a large lump-sum settlement at year end.

What the Inland Revenue (Amendment) Act No. 11 of 2026 changes

The Act takes effect for instalments from Y/A 2026/2027, the year commencing 1 April 2026. No SET is filed for Y/A 2026/2027 or any later year [1]. Section 92, which dealt with instalments under the old system, now applies only to years before Y/A 2026/2027 (Act No. 11 of 2026, s.18) [1].

The Commissioner-General does not issue you an instalment figure. You compute it yourself from the formula, before each due date. The base, A, is the previous year's tax payable, so for Y/A 2026/2027 it is your Y/A 2025/2026 tax.

The estimate route has not disappeared. Under the proviso to the amended section 90(3), where you had no taxable income in the previous year, or you expect this year's income to be lower, A is your estimate of the current year's tax, worked out under the procedure the Commissioner-General specifies [1]. The circular calls this Method 2, and provides a petition route (Method 3) for exceptional cases [2]. Keep a written basis for any estimate you use.

How quarterly instalments are calculated from Y/A 2026/2027

The base method (Method 1 in the circular) is [2]:

Each quarterly instalment = (A minus C) divided by B

• A: income tax payable for the previous year of assessment
• B: the number of instalments remaining, including the one now due
• C: instalments already paid for the year, plus tax withheld from your income during the year (for example WHT on interest)

For Y/A 2026/2027, A is your Y/A 2025/2026 tax. For Y/A 2027/2028, it will be your Y/A 2026/2027 tax, and so on.

For five worked cases, see how to calculate quarterly income tax instalments.

Worked example: a hypothetical company

Take a hypothetical company with income tax payable of LKR 3,600,000 for Y/A 2025/2026. Between the first and second instalments, LKR 300,000 of tax is withheld from its income.

If the company's actual Y/A 2026/2027 liability turns out to be LKR 4,200,000, the outstanding LKR 600,000 is payable by the final payment date after the year ends (for Y/A 2025/2026 that date was 30 September 2026) [3].

If the actual liability turns out to be lower, say LKR 2,800,000, the overpaid LKR 800,000 stands as a credit or is available for refund. If you expect that in advance, the estimate route described above lets you base A on the lower current-year estimate instead.

Where the prior-year figure is not yet final: A comes from the previous year's finalised tax computation. If your Y/A 2025/2026 computation is not yet final, use the best available figure for each instalment and adjust later instalments once it is final. Do not defer the first instalment pending the final figure.

Where prior-year tax was nil: There is no automatic exemption from quarterly payments because last year's liability was zero. Where there was no taxable income in the previous year, A is the current-year estimate under the circular's procedure [2]. This applies to a newly incorporated company or one that made a loss.

The four instalment deadlines for Y/A 2026/2027

The four quarterly due dates are unchanged. Only the calculation method has changed [3].

The IRD's printed 2026 calendar still shows a "SET" line on 15 August; the Act overrides it, and only the instalment is due [1]. If the 15 August 2026 instalment has not been paid, interest is already running, and once 14 days have passed a 10 percent penalty applies (see below). Pay it now.

For a complete view of all Sri Lanka tax filing and payment deadlines across the year (VAT, APIT, SSCL, and corporate income tax), use the tax compliance calendar 2026.

Who is affected: companies, individuals, and partnerships

The instalment rules apply to all persons who are instalment payers under section 90(1) of the IRA: broadly, any person with assessable income from business, investment, or other sources where employer APIT withholding does not fully cover the final tax liability.

Companies: The most common case. Resident and non-resident companies with a Sri Lanka income tax liability pay quarterly instalments, whatever their size or sector.

Individuals with business or investment income: A self-employed professional, a sole trader, or a landlord with significant rental income who has income tax exposure beyond APIT coverage is also an instalment payer. For the current personal income tax band structure, see the Sri Lanka income tax bands guide. The five-band table (6% to 36%) and the LKR 1,800,000 personal relief remain unchanged for Y/A 2026/2027.

Partnerships and trusts: Taxable as separate entities under the IRA where applicable. The same instalment formula applies.

Employers and APIT: The SET change does not affect how employers calculate or remit APIT (Advance Personal Income Tax) on employee salaries and wages. APIT is a separate monthly obligation. See the APIT deduction guide.

Companies with a non-March financial year: The year of assessment runs from 1 April to 31 March whatever your accounting year [4]. A company may apply to the Commissioner-General to change its year of assessment (section 20(2)) [4]; until that is approved, use the standard instalment dates.

Transitional position: Y/A 2025/2026 was the last SET year

Y/A 2025/2026 was the final year of assessment under the old SET rules. Act No. 11 of 2026 made Y/A 2026/2027 the first year in which no SET is filed [1].

What the transition means in practice:

If your Y/A 2025/2026 SET filings and four quarterly instalment payments are complete, no further action is required under the old system for that year, apart from the final payment by 30 September 2026 and the return by 30 November 2026 [3].

If any Y/A 2025/2026 instalments remain outstanding, they are still due under the original terms. The abolition does not retroactively alter obligations for Y/A 2025/2026.

Your Y/A 2025/2026 tax payable becomes A for each of your Y/A 2026/2027 instalment calculations.

Interest and penalty risk does not go away

Abolishing the SET removes a filing obligation, not a financial risk. An instalment not paid by its due date carries interest at 1.5% for each month or part month (sections 157 and 159), and an instalment still unpaid 14 days after its due date attracts a penalty of 10% of the unpaid amount (section 179(2)) [4]. A balance left after the instalments is due by the final payment date, and interest runs on it from then if it is late.

The practical exposure scenario: A company whose income grows 40% year on year pays instalments based on the previous (lower) year, then faces a large balance after year end. With the standard 30% corporate tax rate, a LKR 10,000,000 increase in taxable income generates LKR 3,000,000 of additional tax, which must be funded by the final payment date. Provide for it during the year rather than finding it in September.

The planning discipline that mattered for the SET, knowing your current-year trading trajectory and anticipating the year-end liability, still matters, now for cash management and provisioning rather than filing. Check that each instalment payment shows in RAMIS against the right year and period. See the RAMIS filing guide for portal navigation.

Related: Circular SEC/2026/E/06: quarterly income tax instalments for 2026/27.

Frequently asked questions

Is the SET form still required for Y/A 2025/2026?

Y/A 2025/2026 is governed by the original rules, and its SET date has passed. The abolition takes effect from Y/A 2026/2027 [1]. If your Y/A 2025/2026 SET and four instalments were properly filed and paid, no further SET-related action is needed for that year.

From which year does the SET abolition take effect?

Y/A 2026/2027, commencing 1 April 2026. The enabling legislation is the Inland Revenue (Amendment) Act No. 11 of 2026 [1].

How is each quarterly instalment calculated under the new rules?

(A minus C) divided by B: the previous year's tax payable, less instalments already paid and tax withheld during the year, divided by the number of instalments left [1] [2]. The four instalment dates remain 15 August, 15 November, 15 February, and 15 May.

What if my prior-year income tax payable was zero?

You do not automatically have a zero instalment obligation. Where there was no taxable income in the previous year, A is your estimate of the current year's tax under the Commissioner-General's procedure (Method 2 in Circular SEC/2026/E/06) [2].

What if I expect my Y/A 2026/2027 income to be lower?

The proviso to section 90(3) lets you use the current-year estimate as A where you expect lower income, following the circular's procedure [1] [2]. Document the basis.

What happens if my Y/A 2026/2027 income is significantly higher than Y/A 2025/2026?

Your instalments follow the Y/A 2025/2026 figure. The additional tax for Y/A 2026/2027 is payable by the final payment date after the year ends, with interest if it is paid late [4].

Do individuals and partnerships also follow the new instalment formula?

Yes. All instalment payers under section 90(1) of the IRA, including companies, individuals with business or investment income, and partnerships, use the same formula from Y/A 2026/2027. The SET was not limited to companies; its abolition is not either.

Where do I find the IRD's official Y/A 2026/2027 instalment guidance?

Circular SEC/2026/E/06 (Re-Revised), dated 12 August 2026, on the IRD website [2]. If your situation involves a nil prior year, a lower expected income, or a prior-year computation that is not yet final, record the basis you use before the next instalment date.

Talk to us. If you want your instalment base and the next payment checked, particularly after a nil or loss year, our tax team can work through it 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. Parliament of Sri Lanka. Inland Revenue (Amendment) Act, No. 11 of 2026, certified 3 June 2026, ss.16 (section 90(3) and proviso), 17 and 18. 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. Circular SEC/2026/E/06 (Re-Revised), quarterly instalments under section 90(3) (12 August 2026), Methods 1 to 3. https://www.ird.gov.lk/en/publications/Circulars_Circulars/SEC_2026_E_06_ReRiv_E.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Tax Calendar 2026, instalment dates for Y/A 2026/2027, final payment and return for Y/A 2025/2026. https://www.ird.gov.lk/en/publications/Tax%20Calendar_Documents/Tax_Calendar_2026_E.pdf . Primary. Accessed 15 October 2026.

1. Inland Revenue Department. Inland Revenue Act, No. 24 of 2017, consolidated, ss.20, 90, 157, 159 and 179(2). https://www.ird.gov.lk/en/publications/Acts_Income%20Tax_2017/IRA_Cons_Act_-_2025_Changes.pdf . Primary. Accessed 15 October 2026.