The full guide
How salary tax (APIT/PAYE) works in Sri Lanka — current rates and 2026/27 planning
Reviewed and updated July 16, 2026 · Written for Sri Lankan investors and borrowers
If you earn a salary in Sri Lanka, two deductions shape your take-home pay: Advance Personal Income Tax (APIT, formerly called PAYE) and your 8% contribution to the Employees’ Provident Fund. Understanding exactly how each one is computed lets you check your payslip, negotiate salaries in gross-versus-net terms, and plan around bonuses and increments.
This guide uses the rate changes effective from 1 April 2025 and the published 2025/2026 IRD APIT structure for a 2026/27 planning estimate, with worked examples in rupees. A dedicated 2026/27 APIT table had not been published at the 16 July 2026 review date, so payroll deductions should be rechecked when IRD issues it.
The tax-free threshold: Rs. 150,000 per month
Every resident individual (and non-resident citizen) receives a personal relief of Rs. 1,800,000 per year of assessment. Spread across twelve months, that is Rs. 150,000 of monthly employment income on which no APIT is deducted. If your gross monthly remuneration is at or below Rs. 150,000, your employer should not deduct any income tax under Tax Table 01.
This relief was increased from Rs. 1,200,000 with effect from 1 April 2025, and the old 12% bracket was removed at the same time — so if you are comparing against a payslip from 2024, the numbers will legitimately differ.
The rates used for the 2026/27 estimate
Above the relief, taxable income is charged in five progressive bands. The first Rs. 1,000,000 of annual taxable income is taxed at just 6%, and only income above Rs. 2,500,000 of taxable income (roughly Rs. 358,333 per month of gross pay) reaches the top 36% rate.
| Taxable income band | Rate |
|---|---|
| First Rs. 1,000,000 | 6% |
| Next Rs. 500,000 | 18% |
| Next Rs. 500,000 | 24% |
| Next Rs. 500,000 | 30% |
| Balance above Rs. 2,500,000 | 36% |
Worked example: Rs. 300,000 gross monthly salary
Take a gross monthly salary of Rs. 300,000 (Rs. 3.6M per year). The first Rs. 150,000 per month is covered by relief. Of the remaining Rs. 1,800,000 annual taxable income: Rs. 1,000,000 is taxed at 6% (Rs. 60,000), Rs. 500,000 at 18% (Rs. 90,000), and the final Rs. 300,000 at 24% (Rs. 72,000). Annual tax is Rs. 222,000, or Rs. 18,500 per month.
The employee also contributes 8% of gross pay to EPF — Rs. 24,000 per month — which is deducted from salary but does not reduce the APIT calculation. Take-home pay is therefore Rs. 300,000 − 18,500 − 24,000 = Rs. 257,500. The calculator above reproduces this math for any salary and shows the slab-by-slab breakdown.
EPF, ETF, and what your employer really pays
Beyond your visible deductions, the employer contributes 12% of your gross earnings to EPF and 3% to ETF. On a Rs. 300,000 salary, that is another Rs. 45,000 per month of retirement savings paid on your behalf — the true monthly cost of employing you is Rs. 345,000, not Rs. 300,000.
When comparing job offers, always compare gross salaries plus retirement contributions, not take-home figures alone. A job that pays allowances outside of EPF-liable earnings quietly reduces your long-term retirement fund.
Bonuses, second jobs, and freelance income
Lump-sum payments such as annual bonuses are taxed under a separate APIT table that estimates your annual income including the bonus, so a bonus is effectively taxed at your marginal rate — a Rs. 500,000 bonus for someone already in the 36% band loses Rs. 180,000 to tax.
Income from a second employer or freelance work is not covered by your primary employer’s APIT. Service fees above Rs. 100,000 per month paid to professionals attract a 5% advance income tax deduction, and you may need to file a return and settle the balance at your slab rates. Foreign-sourced income remitted through banks enjoys concessionary treatment (6% on the first Rs. 1,000,000 above relief, then a 15% cap under current rules for qualifying service exports).
How to verify your payslip
Employers must deduct APIT using the IRD-published tables and remit it monthly. Your deduction should match Tax Table 01 for regular pay. If you have only one employment and no other income, the APIT deducted is generally a final settlement — but you can still register with the IRD and file a return to claim refunds if excess tax was withheld (for example, if you worked only part of the year).
Quick checklist
- No APIT should be deducted if your regular gross pay is Rs. 150,000/month or below.
- EPF 8% is calculated on gross earnings including most allowances — not basic salary alone, unless your allowances are genuinely excluded categories.
- Bonus months will show a larger deduction under APIT Table 2 — that is normal, not an error.
- Keep your T-10 certificate (annual APIT summary) — you need it to file a return or claim a refund.
Sources & further reading
This guide is educational and reflects publicly available rules and market conventions at the review date. Tax rates, bank rates, and regulations change — verify current figures with the institution or the Inland Revenue Department before making a financial decision. Nothing here is financial, tax, or investment advice.