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.
In the case of a resident individual, following expenditure up to a total sum of LKR 1,200,000 incurred for a year of assessment on or after 1st January 2020 :-
- Health expenditure including the contribution to medical insurance
- Vocational education or other educational expenditure incurred locally by such individual or on behalf of such individuals 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 the licensed by the Securitas and the exchange commission of Sri Lanka or Treasury Bonds under the registered stock and security ordinance or Treasury bills under the local.