Comprehensive Analysis of the Inland Revenue (Amendment) Act, No. 11 of 2026

The Inland Revenue (Amendment) Act, No. 11 of 2026, certified on June 3, 2026, introduces wide-ranging amendments to the principal enactment (Act No. 24 of 2017). These changes involve retrospective implementations, future-dated compliance mandates, and immediate adjustments to tax rates and enforcement powers.

Below is a detailed breakdown of each major change introduced by the 43 sections of the Amendment Act, along with their respective effective dates.

1. Structural Income and Residency Changes

• Motor Vehicle Realization (Section 2): The definition of "income from other sources" under Section 8 is expanded to explicitly include under excluded categoary in ascertaining gains from the realization of motor vehicles.
• Effective Date: April 1, 2024.
  
• Donations to Government or Universities (Section 4): Transferring an asset as a gift or donation to the Government of Sri Lanka or a University established under the Universities Act is treated as deriving an amount equal to the net cost of the asset immediately before realization.
• Effective Date: June 3, 2026.
  
• Investor Category Residence Visa (Section 9): Individuals holding this specific visa are now deemed non-residents in Sri Lanka for tax purposes.
• Effective Date: April 1, 2025.
  
  
• Foreign Employment Residency (Section 9): Individuals leaving Sri Lanka for employment under a contract of one year or more with a non-associated employer are not considered resident during that contract period.
• Effective Date: April 1, 2025.

2. Exemptions and Exclusions

• Life Insurance Policy Amounts (Section 6): New Section 52A excludes amounts received from death, maturity, or surrender of a life insurance policy from assessable income (provided they are not business/employment income, annuities, or pensions).
• Effective Date: April 1, 2025.
  
• Private Schools (Section 38): Redefines "Government assisted private school" to include those registered with the Ministry of Education and following government circulars as exempt entities (excluding those under the Companies Act).
• Effective Date: April 1, 2018 (Retrospective).
• Gem Sales (Section 38): The exemption for gem sales is now strictly tied to the amount being shown in the monthly tax return submitted by the National Gem and Jewellery Authority.
• Effective Date: April 1, 2025.
  
  
• Sri Lanka Air Force Payments (Section 38): Amounts derived by non-residents for aircraft, software licenses, or related services provided to the Sri Lanka Air Force are exempt.
• Effective Date: April 1, 2025.
  

3. Business Deductions and Credits

• Expanded Cash Payment Methods (Section 3): Deductions for payments of Rs. 500,000 or more are now allowed if made by depositing cash directly into the recipient's bank account.
• Effective Date: May 8, 2023.
  
• Direct Deduction for Exports (Section 10): Payments with no source in Sri Lanka are directly deductible if incurred during the year in relation to the export of goods or services from Sri Lanka.
• Effective Date: April 1, 2018 (Retrospective).

• Head Office Expenditure Cap (Section 11): For non-resident persons with a Sri Lankan PE, the deduction for head office costs is capped at the lesser of actual expenditure or 10% of assessable income from that business.
• Effective Date: April 1, 2025.

• Qualifying Payment Carry-Forward (Section 5): Unutilized deductions for donations to charitable institutions for institutionalized care can now be carried forward indefinitely.
• Effective Date: April 1, 2025.
  
• Salary Arrears Tax Credit (Section 21): Provides a tax credit for employees receiving backdated salary (due to promotion, reinstatement, etc.) so the tax burden is no higher than if paid in the original years.
• Effective Date: January 1, 2024.
  

4. Withholding Tax (WHT) Reforms

• Expanded Liable Service Providers (Section 13): Amends Section 85 to include a significantly larger list of individuals subject to WHT on service fees. The full list now includes:
• academic, auditor, modeller, personal trainer, coach, valuer, artist, actor, dancer, singer, musician, event organizer, photographer, videographer, therapist, counsellor, beautician, cook, electrician, dentist, veterinarian, social media specialist, brand ambassador, sports person, specialist for information technology, advertising agent, advisor, translator, writer, debt collector or any individual.

• Effective Date: June 3, 2026.
  
  
• Low-Income Resident Interest Exemption (Section 12): Prohibits withholding tax on interest/discounts for resident individuals with no taxable income who provide a self-declaration.
• Effective Date: April 1, 2025.

• Free Certificates (Section 15): Withholding agents must now serve certificates to withholdees free of charge.
• Effective Date: June 3, 2026.
  

5. Mandatory TIN Usage and Registration

• Company Registration (Section 23): Every company incorporated or registered in Sri Lanka must register for a Taxpayer Identification Number (TIN) within 30 days of incorporation.
• Effective Date: June 3, 2026.
  
• Mandatory TIN Submission (Section 24): Mandatory submission of a TIN Certificate is required to:
• Open financial accounts; obtain building plan approvals; register or renew motor vehicle licenses; register land or titles; register a business; transfer company shares; and obtain credit cards
• Effective Date: April 1, 2026.

6. Administration and Enforcement

• 120% Acceptance Rule (Section 26): Individual returns declaring tax at ≥ 120% of the previous year's tax (paid in full with a non-fraud affidavit) must be accepted as filed, preventing amended or additional assessments for that year.
• Effective Date: April 1, 2025.
  
• Return Filing Threshold (Section 19): Individuals whose interest income does not exceed Rs. 5,000 are exempt from filing an annual return.
• Effective Date: April 1, 2025.
  
• Magistrate Court Recovery (Section 28): Tax defaults can be certified to a Magistrate and deemed a fine imposed by the court, potentially leading to imprisonment if unpaid.
• Effective Date: April 1, 2026.
  
• Prosecution of Offences (Section 31): Failure to file annual statements, file returns, or register for tax is an offence punishable by fines up to Rs. 400,000 and/or six months' imprisonment.
• Effective Date: June 3, 2026.
  
• Newspaper Summons (Section 29): Authorization to publish summons/notices in newspapers (Sinhala, English, and Tamil) if direct service is impossible.
• Effective Date: June 3, 2026.

7. Revised Rates and Investment Incentives

• Capital Gains Tax (CGT) Increases (Section 36): Gains from realization of investment assets are increased from 10% to:
• Individuals and Partnerships: 15%.
• Trusts and Unit Trusts: 30%.
• Effective Date: June 3, 2026.
• 100% Capital Allowance (Section 37): Granted for depreciable assets (excluding intangibles) in new undertakings with total investments between USD 250,000 and USD 3 million.
• Effective Date: April 1, 2026.
  
• Expiry of Old Concessions (Section 35): All remaining concessionary rates under the repealed 2006 Act officially expire on March 31, 2025.
• Interest Write-off (Section 42): CGIR shall write off outstanding interest on underpayments (including Surcharge Tax and Debt Repayment Levy) if the full principal tax and penalties are paid within six months of the Amendment Act's operation.
• Effective Date: June 3, 2026

Refer :Inland Revenue (Amendment) Act, No. 11 of 2026