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.
Personal relief (i.e. tax-free allowance) is as follows:
|Year / Period||Personal relief (LKR)|
|Years of assessment up to an including 2021/22||3,000,000|
|Period of first nine months of 2022/23||2,250,000|
|Period of last three months of 2022/23||300,000|
|Years of assessment from and including 2023/24||1,200,000|
In the case of a resident individual, relief is available for the following expenditures, up to a total sum of LKR 1,200,000 incurred for a year of assessment on or after 1 January 2020 (however, with effect from 1 January 2023, this expenditure relief has been removed):
- Health expenditure, including the contribution to medical insurance.
- Vocational education or other educational expenditure incurred locally by such individual or on behalf of such individual's children.
- Interest paid on housing loans.
- Contribution made to a local pension scheme other than for a scheme under the employer or on behalf of the employer by an employee.
- Expenditure incurred for the purchase of shares or any other financial instrument listed in the Colombo Stock Exchange and licensed by the Securities and Exchange Commission of Sri Lanka, Treasury Bonds under the registered stock and security ordinance, or Treasury bills.