Question 1

What is the personal tax-free relief threshold in Sri Lanka for 2026?

Accepted Answer

Under the Sri Lanka Inland Revenue Department (IRD) regulations for Year of Assessment 2026, the annual personal tax relief is LKR 1,800,000 (equivalent to LKR 150,000 per month). Any individual earning up to LKR 150,000 gross monthly salary pays 0% APIT tax.

Question 2

What are the progressive APIT tax brackets in Sri Lanka for 2026?

Accepted Answer

For annual taxable income exceeding LKR 1,800,000, progressive tax slabs are: 1) First LKR 1,000,000 @ 6%, 2) Next LKR 500,000 @ 18%, 3) Next LKR 500,000 @ 24%, 4) Next LKR 500,000 @ 30%, and 5) Any balance above LKR 2,500,000 @ 36%. Note that the old 12% bracket was eliminated.

Question 3

How are Employee EPF, Employer EPF, and Employer ETF calculated?

Accepted Answer

Employee EPF is 8% deducted directly from the eligible gross basic salary, reducing net in-hand pay. In addition, the employer contributes 12% to EPF and 3% to ETF (total 15% employer statutory liability), which does not reduce the employee salary and represents an additional benefit.

Question 4

How does LankaSalary calculate monthly APIT deduction?

Accepted Answer

LankaSalary annualizes your monthly emoluments, applies the statutory LKR 1,800,000 tax relief, computes tax liability across progressive slabs, and divides by 12 for an exact monthly APIT withholding deduction.

Question 5

Are cash allowances, vehicle allowances, and bonuses taxable?

Accepted Answer

Yes, under IRD guidelines, cash allowances, performance bonuses, and fringe benefits form part of assessable income subject to APIT. Valid non-taxable official expense reimbursements on actual receipts are exempt.

Question 6

What is the difference between EPF and ETF in Sri Lanka?

Accepted Answer

EPF (Employees' Provident Fund) is a long-term retirement savings scheme funded by an 8% employee deduction and 12% employer contribution. ETF (Employees' Trust Fund) is a 3% employer-funded benefit providing healthcare, insurance, and claim benefits without any deduction from the employee's salary.

Question 7

What is the exact formula for Net Take-Home Salary in Sri Lanka?

Accepted Answer

Net Salary = Gross Earnings (Basic + Allowances + Bonus) - Employee EPF (8%) - Monthly APIT Tax. Note that Employer EPF (12%) and ETF (3%) are paid directly by your employer as part of Total Cost to Company (CTC).

Question 8

What is the tax rate for foreign income and remote freelancers in Sri Lanka?

Accepted Answer

Under the Inland Revenue Act for export of services (e.g., software engineering, IT consulting, digital marketing for foreign clients), foreign currency remitted through any licensed commercial bank in Sri Lanka qualifies for concessionary tax treatment: 1) First LKR 1,800,000/year is 0% tax-free personal relief, 2) Next LKR 1,000,000 is taxed at 6%, and 3) Any remaining taxable income is capped at a 15% concessionary rate rather than standard progressive rates reaching 36%.

Question 9

Can remote workers and freelancers deduct business expenses from foreign income?

Accepted Answer

Yes. Allowable expenses incurred solely and exclusively in the production of freelance or export income (such as hardware, internet subscriptions, software tools, workspace rent, and sub-contracting fees) are deductible from gross foreign earnings before computing taxable income.

Question 10

What is Foreign Tax Credit (FTC) under Section 80?

Accepted Answer

Under Section 80 of the Inland Revenue Act, if you have already paid income tax or withholding tax in a foreign country (e.g., US W-8BEN withholding), you are entitled to claim a credit against your Sri Lankan tax liability up to the amount of Sri Lankan tax attributable to that foreign income.

Tax Slab	Rate	Taxable in Slab (Mo)	Tax Charged
Tax-Free Personal Relief	0%	LKR 150,000.00	LKR 0.00
First LKR 1,000,000 (6%)	6%	LKR 83,333.33	LKR 5,000.00
Next LKR 500,000 (18%)	18%	LKR 16,666.67	LKR 3,000.00
Next LKR 500,000 (24%)	24%	LKR 0.00	LKR 0.00
Next LKR 500,000 (30%)	30%	LKR 0.00	LKR 0.00
Balance above LKR 2,500,000 (36%)	36%	LKR 0.00	LKR 0.00
Total APIT Tax Payable (Monthly):			LKR 8,000.00

Sri Lanka Salary (APIT) & Foreign Income Tax Calculator (2026 IRD)

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Sri Lanka Salary & APIT Tax Guide (2026)