Income Tax Changes and Tax Exemptions in Sri Lanka 2023

Sri Lanka is set to implement a number of changes to its income tax system in 2023. These changes are expected to have a significant impact on individuals and businesses, and it is important for taxpayers to be aware of what to expect. In this blog post, we will outline some of the key changes to the income tax system in Sri Lanka that are expected to take effect in 2023.


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What is Income Tax?

Income tax is a kind of tax charged from individuals and organizations on the subject of income or profits earned by them from both inside and outside of the country.

Every government considers these tax incomes are the major inter-country earnings. The Government uses those taxes for many costs such as infrastructure development projects, public services like health, education & civilians life improvement programs.

Income tax is charged according to the overall income of an individual or an establishment. It has been restricted to a certain eligible amount for settling the tax.

Income Tax for Individuals.

Every citizen and resident earning in Sri Lanka is being charged Income Tax according to how much they’ve earned in a total of a month. If you have 500,000 LKR surpassed monthly earnings, you’re liable to pay tax for your income. The code of the Inland Revenue Department (IRD) of Sri Lanka classified the tax payable sources of income.

income -tax -for- individuals

Employment Income.

Total gains and profits earned from employment for a year of assessment by an individual.

Business Income.

Income or Profit from a person’s own conducted businesses for a year of assessment.

Investment Income.

A person’s income from investments he/she funded for a year of assessment.

Other Income.

A person’s income from various other sources for a year of assessment. Anyhow it does not include the profits from ordinary and non-recurring channels.


Tax Paying Eligibility for the Residents and Non-Residents.

People who claim themselves as a resident of Sri Lanka are chargeable with income tax according to their income from Sri Lanka and income generated by them from outside of Sri Lanka. In the same way, non-resident people in Sri Lanka are chargeable with income tax for the profits only derived from Sri Lanka.


The taxable income of a resident or non-resident individual for a year of assessment commencing from April 1, 2023, shall be taxed at the following rates.

 

Taxable Income Tax Payable
Not exceeding Rs. 500,000 6% of the amount in excess of Rs. 0
Exceeding Rs. 500,000 but not exceeding Rs. 1,000,000 Rs. 30,000 plus 12% of the amount in excess of Rs. 500,000
Exceeding Rs. 1,000,000 but not exceeding Rs. 1,500,000 Rs. 90,000 plus 18% of the amount in excess of Rs. 1,000,000
Exceeding Rs. 1,500,000 but not exceeding Rs. 2,000,000 Rs. 180,000 plus 24% of the amount in excess of Rs. 1,500,000
Exceeding Rs. 2,000,000 but not exceeding Rs. 2,500,000 Rs. 300,000 plus 30% of the amount in excess of Rs. 2,000,000

 

Exceeding Rs. 2,500,000

Rs. 450,000 plus 36% of the amount in excess of Rs. 2,500,000

 

Sri Lanka provides some flexibility in paying the tax to the IRD. The commission allows both individuals and organizations to pay the entire estimated tax in an installment.


Installment Payment Date
1st Installment On or before the 15th day of the month of August, of that year of assessment
2nd Installment On or before the 15th day of the month of November, of that year of assessment
3rd Installment On or before the 15th day of the month of February, of that year of assessment
4th Installment

On or before the 15th day of the month of May, of the next

succeeding year of assessment

Final Installment On or before the date that is after six months end, of that year of assessment

Tax Reliefs for Individuals.

In consonance with the Inland Revenue Act, No 24 of 2017 the tax regulations give exemptions for some selected payments. For the following payments, an individual can get a deduction even from the part of his/her tax payable income for that year of assessment.


tax-reliefs- for-individuals


  • Donations are provided to an approved charity.
  • Donations to the government or specified institutions.
  • Profits are sent to presidential funds.

Tax Reliefs:

Personal Relief

Sri Lankan citizens are eligible for a personal relief of LKR 3 mn annually.

Anyhow this won’t apply to those who’re presenting as trustees, executors, or a liquidator.

Expenditure Relief

Individuals can get an exemption of up to LKR 1 mn for the following expenditure in a year of assessment.

  • A health outlay and payment for medical insurance.
  • Educational expenses for the beneficent or for their children.
  • Contributions for approved pension schemes.
  • Expenses for purchase of the
  • Interest expenses for housing loans.

Rent Relief

Residents are eligible for the 25% deduction from the total rental income from an investment asset for the year of assessment.

Tax Paying Eligibility for the Residents and Non-Residents.

People who’re claiming themselves as a resident of Sri Lanka are chargeable with income tax according to their income from Sri Lanka and Income generated from outside of Sri Lanka. In the same manner, People who’re being considered a non-resident in Sri Lanka are chargeable with income tax for the profits they’ve earned only from inside Sri Lanka.


An individual who is a resident in Sri Lanka for a year of assessment or who’s a non-resident in Sri Lanka but is a citizen of Sri Lanka will have the following relief on their income tax:

  1. 500,000, for each year of assessment prior to January 1, 2020
  2. 3,000,000, for each year of assessment commencing on or after January 1, 2020


NOTE: An individual with the status of trustee, receiver, executor or, liquidator won’t be applicable for those exemptions.

Income Tax for Companies & Corporates.

Taxing percentage varies based on the industry and profits generated. Medium Enterprises with LKR 500 million annual turnovers are expected to pay lower taxes. The following list shows the tax rates for corporates.

Company Type Rates
Small and medium enterprises (SME) 14%
The company provides construction services 14%
The company provides educational services 14%
The company running an agro-processing 30%
The company engaged in promoting tourism 14%
The company provides healthcare services 30%
Profits from Manufacturing 30%
IT & Services 30%
Profits from a business of betting and gaming, liquor and tobacco 40%
Banks & Insurance 30%
Construction companies 30%
   


Exports 30%
leisure activity businesses 30%
Renewable Energy 30%
Retail 30%

companies- corporates

Conclusion

All the tax rates mentioned in the above article are applicable for the assessment year starting from the 1st of April 2023. Consider paying your income tax to avoid unlikeable charges from the Inland Revenue Department. Not only for that but also for a stand along with the country’s development. Let’s help to rebuild the country with a stable economy as one nation.

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