Sri Lanka personal Income Tax

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DISCUSSION OF MODULE II CERTFICATE IN PERSONAL FINANCE MANAGEMENT- CPFM 1123 PERSONAL TAXATION

DEFINITION FOR TAX : 

DEFINITION FOR TAX WHAT IS A TAX Tax is a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law.

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(01) The Inland Revenue Act Inland Revenue Act No 10 2006 & subsequent amendments Inland Revenue (Amendment) Act No 10 of 2007 Inland Revenue (Amendment) Act No o9 of 2008 Inland Revenue (Amendment) Act No 19 of 2009

TYPES OF TAXES : 

TYPES OF TAXES Income Tax (IT) Value added Tax (VAT) Economic Service Charge (ESC) Debit Tax Betting & Gaming Levy Nation Building Tax (NBT) Stamp Duty Social Responsibility Levy Share Transaction Levy Turnover Tax Withholding Tax (WHT) Tourist Development Levy (TDL) PAYE Other

WHY DO WE WANT TO PAY TAX ? : 

WHY DO WE WANT TO PAY TAX ?

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(02) Charging Section Income Tax shall be charged for the every year of assessment in respect of the profit & income of every person for that year of assessment at the appropriate rates specified in 1st to 5th schedules to the Act. In the case of a resident person in Sri Lanka Income & profits wherever arising (world income) In the case of non resident person in Sri Lanka Income and Profits arising in or derived from Sri Lanka

(03) Interpretations : 

(03) Interpretations Year of Assessment means the period of twelve months commencing on the 1st of April of any year and ending on the 31st day of March in the immediately succeeding year. 12 months period from 01/04/2009 to 31/03/2010 is the year of Assessment 2009/2010 Profit & Income – not defined Instead of a definition a list of sources of income has been given in the section No.03 Income from employment Profit from any trade, business, profession, or vocation. Rent & Net annual value of lands & improvement Dividends, Interests, or Discounts Charges or Annuities, Royalties, or Premiums Capital gain on or before March 31 2002 Winning from Lotteries, Betting & Gambling

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Any sum received by an NGO by way of donation, grant or any other manner. Income from any other source, what –so-ever but not of a casual & non recurring nature. Profits & Income arising in or derived from Sri Lanka This includes Profits & Income from services rendered in Sri Lanka Eg. Employment Income, Profession, Vocation Profits & Income from property in Sri Lanka Eg. Rent from houses in Sri Lanka Dividends on shares Interest on deposits. (03) Interpretations cont…

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Person, Includes, Individual Companies Bodies of Person (Clubs, Associations, Institutions excluding companies & partnerships Charitable Institutions Government – Other than Government of Sri Lanka Residence of Individuals Where an individual is physically present in Sri Lanka for 183 days or more during any year if assessment then he is deemed resident in Sri Lanka throughout that year of assessment. Where an individual has been deemed resident for 2 or more consecutive years of assessments then is deemed resident until such time as he is absent from Sri Lanka for an unbroken period of 365 days.

Discussion of the Module II : 

Discussion of the Module II Spouse or Child Exemption Limit Return & Supporting Documents Income Tax is payable on self assessment basis in five installments. 1st Installment - on or before the 15th day of the month of August that relevant year 2nd Installment - on or before the 15th day of the month of November that relevant year 3rd Installment - on or before the 15th day of the month of February that next year 4th Installment - on or before the 15th day of the month of May that next year Final Payment - on or before the 30th day of the month of September that next year Discount on Income Tax payable by IndividualsAny individuals who makes any quarterly self-assessment income tax payment, one month before the due date, is entitled to a 10% discount thereon (not exceeding such percentage on the installment based on the current year profits).

SOURCES OF INCOME : 

SOURCES OF INCOME Income from Employment Benefits in Money Benefits not in Money Profits from Trade, Business, Profession or Vocation Rent & Net Annual value Dividends Interests Annuities & Royalties Income from any other sources Total Statutory Income

Deductions from Total Statutory Income : 

Deductions from Total Statutory Income Losses Interest, Annuities, Royalties , Ground Rent Deductions from Total Statutory Income Assessable income Allowance for Qualifying Payments Total Deductions from Assessable Income Taxable income Tax on Terminal Benefits Tax on Balance Taxable Income Tax credits Tax payable Refund Claimed 21),22),23) Income Not included in Total Statutory Income 24 Income Exempt from Tax 25 Declaration

(1)Income from employment : 

(1)Income from employment Benefits in Money Payments in money Wages, salary, allowance, leave pay,fee,pension,commision,bonus,gratuity,overtime,director fees, travelling allowances,ent allowances,tips,rewards. Any other benefits to the employee or to spouse child or parents Holiday warrants or passage, school books, domestic servants, company products, clothes, medical schemes. Any payments to any other person for the benefits of the employees, spouse, child or parent. Hospital & medical bills, Electricity, Insurance, Telephone bills, Income tax, school fees. Benefits not in Money Value of free transport

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Rental value of residence provided rent free by the employer, Basis of valuation of this benefit Rental value of the house ( Annual value + Rates ) or Gross rent paid to the owner by the employee ( where the house is not owned by the employer) WHICH EVER IS HIGHER. subject to maximum limit of Rated Area Rs 120,000 p.a. Un-Rated Area Rs 36,000 p.a Estate bungalow Rs. 24,000 p.a. Where the monthly remuneration ( Total of I,II,III ) exceeds Rs. 150,000 per month - maximum limitation Rs. 180,000 per annum. ( not Rs. 120,000 per annum ) (QU)

(2) Profits from Trade, Business Profession or Vocation : 

(2) Profits from Trade, Business Profession or Vocation The Act ( sec 25 & 26 ) does not provide a comprehensive code for ascertaining profits or income. However according to the Act, for the purpose of ascertaining the profit & income of any person from any source, all out goings & expenses, incurred by such person in the production of income shall be deducted. Profits or Income means net income/ Profits after expenses and out goings Expenses deductible are the Expenses and out goings incurred in the production of income ( General Rule) Sec. 25 provides certain deductible expenses Sec. 26 provides certain disallowable expenses Therefore, the deductibility of expenses & out goings other than © & (d) above are decided on the general rule ( incurred is not) subject to General Commercial / accounting practices Case law Department Rulings

(3)Rent Income/ Net annual value : 

(3)Rent Income/ Net annual value Letting immovable property only. Owner’s statutory income is the Net Rent calculated as follows. Net rent is arrived after following deductions from the gross rent Rates payable to local government authority An allowance for repair (25% of the balance rent after rates) Net rent should not be less than NAV Where the NAV is greater than the net rent calculated as above(NR<NAV), that net rent should be disregarded where the NAV is greater than the net rent but occupier pays a gross rent equal to or greater than NAV then NAV should be treated as owners rent income. Where the NAV is greater than the gross rent, Gross rent should be treated as owners rent Difference between NAV & gross rent is occupiers income ( Occupiers income = NAV gross Rent paid)

Rent Income /Net Annual value : 

Rent Income /Net Annual value Gross Rent = $$$$ (-)Rates % ($) $$$ 25% R/Allowance ($) Net Rent $$ Compare with NAV Annual Value = $$$$ (-) 25% R/A ($) Net A/Value $$

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A dividend is a distribution of profits by a company to its share holders in the form of Money or an order to pay money or Shares in any other company or Debentures in that company or any other company A dividend does not include A bonus share or A payment of reduction in capital Any dividend from which Tax at 10% has been deducted at sources will not be subject to further taxation. Therefore; such dividend are not required to be declared. Declared only liable dividends. If any from which tax has not been deducted. (4)Dividend Income

Dividend Exemption : 

Dividend Exemption Any dividend paid, on or after 01/04/2008, by a non resident company of Sri Lanka to any share holder resident in Sri Lanka, where the amount of such dividend is remitted to Sri Lanka through a bank. Certain dividend declared by a company During tax holiday Within one year thereafter Out of exempt profit…….are not liable to tax. But following dividends are NOT EXEMPT and liable to WHT at source as well. Dividend declared by BOI Company after 01/11/2002 Any dividend from which Tax at 10% has been deducted at sources will not be subject to further taxation. Therefore; such dividend are not required to be declared. Declared only liable dividends. If any from which tax has not been deducted.

(5) Interest Income : 

(5) Interest Income Sources of interest Interest on Deposits Interest/Return Certain investments(TBs,(Cash Basis) Debentures) Interest on Loans granted Interest/ Penalty on Delayed Payments on loans Charges on unpaid loans Court awards etc.. Income from interest, Annuities, or Royalties is the full amount falling due. whether received or not (Accrued basis)

Interest income-Double tax relief Agreements : 

Interest income-Double tax relief Agreements If there is a double tax relief agreement(DTR) with that country gross amount of interest is taxable in Sri Lanka Any tax paid to that country with regard to interest income will be consider as tax paid to government of Sri Lanka(as a tax credit) If there is not DTR, net amount after tax is taxable in Sri Lanka example….

Exempt Interest : 

Exempt Interest Interest on any deposit in a bank or financial institution , from which withholding tax at 10% or lesser rate has been deducted, is not required to declared under item 05. Interest accruing on monies in a special Account in a commercial bank opened with the approval of central bank Monies lying in FCBU NRFC, RFC A/Cs Interest accruing on moneys invested in Reconstructed Bonds issued by the Govt of Sri Lanka denominated in US $ Interest accruing on moneys invested in Development Bonds issued by the Govt of Sri Lanka denominated in US $ Interest up to Rs. 200,000 from any special deposit scheme for SENIOR CITIZEN in Sri Lanka..(Over 59 years) Interest accruing from any money deposited in any Treasury Bond Investment in External Rupee Account Interest accruing or arising on or after 01/04/2008 to any person resident in Sri Lanka, from any investment made out side Sri Lanka, Where such interest is remitted to Sri Lanka through a bank A.C

Qualifying Payments : 

Qualifying Payments

Capital Allowances/Depreciation : 

Capital Allowances/Depreciation

NORMAL TAX RATES 2009/2010 : 

NORMAL TAX RATES 2009/2010

Tax on Terminal Benefits : 

Tax on Terminal Benefits Retirement benefits are taxable at a lower rate than normal rate only if the employer has made such payments where applicable under a scheme which is uniformly applicable t all its employees

THANK YOU : 

THANK YOU