Understanding Income Tax in Sri Lanka – A Simple Guide for Individuals & Businesses
Income tax is a key responsibility for individuals and businesses in Sri Lanka. Whether you are a salaried employee, freelancer, entrepreneur, or company owner, understanding how income tax works can help you stay compliant, avoid penalties, and plan your finances better. In this guide, Accounting Buddy (accbuddy.lk) explains income tax in simple terms.
What is Income Tax?
Income tax is a tax charged by the Inland Revenue Department (IRD) of Sri Lanka on income earned during a year of assessment. Income can come from various sources such as salaries, business profits, investments, rents, and professional services.
Who Needs to Pay Income Tax?
You may be required to pay income tax if you are:
- A salaried employee earning above the tax-free threshold
- A self-employed professional or freelancer
- A business owner or partnership
- A company registered in Sri Lanka
- A person earning investment or rental income
Both residents and non-residents earning income in Sri Lanka may be liable to tax under certain conditions.
Types of Taxable Income
Income tax is calculated based on different income sources, including:
- Employment Income – salaries, wages, bonuses, allowances
- Business Income – profits from trading, services, or manufacturing
- Investment Income – interest, dividends, rent
- Other Income – royalties, pensions, commissions
Each category may be taxed differently based on current IRD regulations.
Tax-Free Threshold & Tax Rates
Sri Lanka provides a tax-free income threshold for individuals. Income above this limit is taxed according to progressive tax slabs.
⚠️ Tax rates and thresholds are subject to change by the government. Always check the latest IRD updates or consult a professional accountant.
Companies are taxed at applicable corporate income tax rates, which may vary depending on the nature of the business.
PAYE Tax – For Employees
PAYE (Pay-As-You-Earn) tax is deducted monthly by employers from employee salaries and paid to the IRD.
Key points:
- Employers handle PAYE calculations and payments
- Employees should review payslips to ensure correct deductions
- Annual tax filing may still be required in certain cases
Income Tax Returns & Deadlines
Taxpayers must submit income tax returns annually within the deadline specified by the IRD.
Late submission or non-payment can result in:
- Penalties
- Interest charges
- Legal action by IRD
Timely filing helps you stay compliant and stress-free.
Common Mistakes to Avoid
- Not registering for income tax when required
- Ignoring additional income sources
- Missing tax filing deadlines
- Incorrect tax calculations
- Poor record keeping
Professional guidance can help avoid these costly mistakes.
How Accounting Buddy Can Help
At Accounting Buddy (accbuddy.lk), we provide:
- Income tax registration assistance
- Accurate tax calculations
- Income tax return preparation & filing
- PAYE and compliance support
- Tax planning and advisory services
We help individuals and businesses focus on growth while we handle the numbers.
Need Help with Income Tax?
If you are unsure about your income tax obligations or want professional support, contact Accounting Buddy today. Our expert team is ready to assist you with reliable, affordable, and friendly accounting services.
📧 Email: [email protected]
🌐 Website: https://accbuddy.lk
Disclaimer: This article is for general information purposes only and does not constitute legal or tax advice. Please consult a qualified professional for advice tailored to your situation.
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