An individual is required to account for employment income on a cash basis for income tax purposes. No deductions are allowed from employment income.
In computing taxable income, a deduction is allowed in respect of the following:
- Donations in cash or kind to the government or identified government institutions/funds.
- Cash donations to approved charities established for the provision of institutionalised care for the sick or the needy.
Donations to the government can be deducted without any limitation during that year of assessment. The other deductions are subject to an upper limit of one-third of the taxable income or LKR 75,000, whichever is lower.
Resident and non-resident individuals who are citizens of Sri Lanka are eligible to claim a tax free allowance of LKR 500,000, and relief of LKR 700,000 is available for a resident employee, up to the total of the employment income.