Payment of Tax, PAYE - Employment Income

20th June 2021

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 Contents

1. What is the PAYE Tax in Sri Lanka?

2. PAYE Tax Table and How to Apply?
3. How to calculate PAYE tax for cumulative gains and profits.
4. How to calculate PAYE Tax when there is a tax on the tax rate.
5. What is PAYE Tax payment period codes?
6. PAYE tax payment of Tax
7. Online Tax Payment
8. Annual Declaration of Employment PAYE
9. How to pay deductible PAYE taxes
10. Furnishing PAYE Returns

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 Introduction

I n Sri Lanka taxes are levied by various regulatory authorities by virtue of the powers vested in
them. Taxation in Sri Lanka mainly includes excise duties, value added tax, income tax and
tariffs. Tax revenue is a primary constituent of the government's fiscal policy. The Government of
Sri Lanka imposes taxes mainly of two types in the forms of direct taxes and indirect taxes. As of
2018 CBSL report, taxes are the most important revenue source for the government, contributing
89% of the revenue. The tax revenue to GDP ratio is just about 11.6 percent as of 2018, which is
one of the lowest rates among the upper-middle income earning countries. At present, the
government of Sri Lanka also face major challenges regarding the continuous budget deficits
where government expenditures have exceeded the government tax revenue.
Sri Lanka has a pay-as-you earn (PAYE) scheme where the tax law imposes a liability on every
employer to deduct the income tax from the remuneration of his employees at the time of making
such payments to the employees.
In this report, we are talking about payment of payment of tax, PAYE - employment income.

What is PAYE tax in Sri Lanka?

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Pay As You Earn (PAYE) is a type of income tax that gets charged based on an employee’s
employment income. According to the existing regulations, employees who earn more than Rs
250,000 a month are liable for PAYE tax.
The company, or in other words, the employer, is the person who is responsible for deducting the
PAYE tax with the consent of the employee. Once it is deducted, they must pay the deduction to
the Inland Revenue Department every time salaries get paid. The amount of PAYE tax that gets
deducted from every employee is included in their pay sheets.

How to define PAYE Employment income Act?

The Pay As You Earn the Sri Lankan government removed (PAYE) tax in November 2019.
However, this has been reintroduced as ‘Advance Personal Income Tax (APIT) with the proposed
changes to the Inland Revenue Act No. 24 of 2017 with effect from January 1, 2020.

The Inland Revenue Department (IRD), in a circular, stated that the APIT could be taxed and
deducted by the employer with the consent of an employee who earns more than Rs 250,000 a
month or three million rupees for a year.

Pay As You Earn (PAYE) is a type of income tax that gets charged based on an employee’s
employment income. According to the existing regulations, employees who earn more than Rs
250,000 a month are liable for PAYE tax.

The company, or in other words, the employer, is the person who is responsible for deducting the
PAYE tax with the consent of the employee. Once it is deducted, they must pay the deduction to
the Inland Revenue Department every time salaries get paid.

The amount of PAYE tax that gets deducted from every employee is included in their pay sheets.
If you want to learn about what type of payments needs to be included in a paysheet and learn
about payroll management, you can refer to Salary Sheets, Salary Slips and Salary Slip Formats in
Sri Lanka.

PAYE tax tables, and how to apply them?

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This table should be applied for deducting tax on cumulative gains and profits from employment
of any employee who agreed for deduction of tax by his employer on his gains and profits from
employment. The gains and profits from employment constitutes,
• Monthly regular profits from the employment (Cash and Non-Cash benefits) and
• Lump sum payments
(For value of non-cash benefit, please refer to the Guideline already published)
Above mentioned payments received from January 01, 2020 to March 31, 2020 (hereinafter
referred to as “the period”) should be considered under this table.
Following steps should be followed in computing the tax liability.
01. Tax Computation for the Period
The tax computation should be made as set out below.
Monthly regular profits from the employment (Cash and Non-Cash benefits) XXX
Lump sum payments XX
Cumulative gains and profits from employment for the period XXX
Tax payable for the period should be computed on the cumulative gains and profits in
accordance with the Table 01 given below.

Cumulative Tax Table

Cumulative Gains and Profits from the Tax
Employment (Rs.)

0 – 750,000 Nil
750,001 – 1,500,000 6% of Cumulative Income from employment
less Rs. 45,000/-

1,500,001 – 2,250,000 12% of Cumulative Income from

employment less Rs. 135,000/-

2,250,001 – and above 18% of Cumulative Income from

employment less Rs 270,000/-

Example 01

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Mr. Silva is a resident employee of a private institution and total of his last 3 months regular profits
from employment (including non-Cash Benefits) was Rs 960,000. He received a bonus payment
of Rs. 640,000 in February 2020.
Tax Computation for the Period (January –March, 2020)
Rs.
Gross regular employment income for the period 960,000
Bonus received in February 640,000
Gross payments for the period 1,600,000
Tax payable for the period 57,000
(By applying the relevant tax rate in Cumulative tax table (1,600,000 X 12%) – 135,000)

02. Tax on Tax Rates

Tax on tax arises in the following instances:
1. When an employer or any other person settles income tax liability of an
employee, without being deducted from his salary,
2. Reimbursement by the employer of Income Tax already deducted from
employee’s salary.
Determine the tax payable for the period in accordance with the Table 01 by following the
instruction given under item 01 above.
Use Table 02 for computing tax on tax where applicable, in respect of the tax liability on
cumulative emoluments of employee for the period.

Tax on Tax Rates

January to March Tax (Rs.) Tax on Tax Rate

0 - 42,300 6.38%

42,301 - 121,500 13.64%

121,501 - and above 21.95%

Example 02
Mr. Perera’s gross remuneration for the period from 01.01.2020 to 31.03.2020 was 2,600,000/-.
Employer has undertaken to pay his tax without deducting from his remuneration.

Computation of tax payable by the employer is as follows: -

Tax payable on Rs. 2,600,000 for the period (as per Table 01) 198,000
Add- Tax on Tax at 21.95% of Rs. 198,000 (as per Table 02) 43,461
Total income tax payable for the period by the employer 241,461
Calculating “PAYE” Method and Explain about this calculation.

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Calculate “PAYE” cumulative gains and profits
The following steps can be taken to calculate the correct payment tax to be deducted from an
employee.
Step 1 – The gross salary of Employment can be calculated as follows. This topic is discussed in
more detail in the Salary Sheet, Salary Slips and Salary Slip Forms in Sri Lanka.
Step 2 – Once calculate the gross amount, should find the correct type of tax table that needs to
get applied. The tax payable for the relevant period should be calculated on the gross salary
according to the appropriate PAYE tax tables.
Example
Mr. Fernando is an employee of a private limited company. The total of his last three months of
regular profits from employment (including non-cash benefits) was 860,000. He also received a
bonus payment of Rs. 740,000 in February 2020.
PAYE tax computation period (January – March 2020)
Gross regular employment income for the period 860,000
Bonus received in February 740,000
Gross payments for the period 1,600,000

Now that have calculated his gross payments for the period, can apply the correct rate of tax
according to the PAYE Tax Table.
Cumulative Gains and Profits from the
Tax
Employment (Rs.)
0 – 750,000 Nil
750,001 – 1,500,000 6% of Cumulative Income from employment
less Rs. 45,000/-
1,500,001 – 2,250,000 12% of Cumulative Income from employment
less Rs. 135,000/-
2,250,001 – and above 18% of Cumulative Income from employment
less Rs 270,000/-

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As his gross payments for the period fall within the range of (1,500,001 – 2,250,000), we must apply the
rate of 12% of Cumulative Income from employment and reduce Rs.135,000 from that amount.
After applying this rate, you can see Mr. Fernando’s tax payable for the period is 57,000.
(1,600,000 X 12%) – 135,000) = 57000

Calculate “PAYE” Tax when there is a tax on the tax rate.

A Tax on Tax can happen due to two reasons.
• When an employer or any other person has paid the income tax on behalf of the employee,
without it getting deducted from their salary
• When reimbursement is paid to the employee by the employer for the deducted amount of
income Tax from the employee’s salary.
In these cases, must follow the below steps to calculate the Tax-on-Tax rate.
Step 1 – Calculate the tax that needs to be deducted based on the process described previously
using PAYE Tax Table.
Step 2 – Once have calculated the total amount of tax due, apply the correct rate using the table
below to find the Tax-on-Tax Rate.

January to March Tax (Rs.) Tax on Tax Rate

0 – 42,300 6.38%

42,301 – 121,500 13.64%

121,501 – and above 21.95%

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What is PAYE Tax payment period codes?

YY MM 0

Period Year (e.g:- for 2019, it is 19) Period Month (01, 02 etc)

Examples:-
Payment Period Payment period
Period Code Due Date Amount
From To
01.04.2019 30.04.2019 19040 15.05.2019 N/A
01.05.2019 31.05.2019 19050 15.06.2019 N/A
01.06.2019 30.06.2019 19060 15.07.2019 N/A
01.07.2019 31.07.2019 19070 15.08.2019 N/A
01.08.2019 31.08.2019 19080 15.09.2019 N/A
01.09.2019 30.09.2019 19080 15.10.2019 N/A
01.10.2019 31.10.2019 19100 15.11.2019 N/A

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PAYE Payment of Tax
Every employer has obligation to deduct PAYE Tax from the Employee as per PAYE tax tables
and the total deducted amount should remit to the department on or before 15th of the following
month.

Online tax payment

Taking in to account of the Covid -19 Endemic situation currently prevailing in the country, the
Inland Revenue Department (IRD) has introduced an Alternative Tax Payment System (ATPS)
for making tax payments through Online Fund Transfer Facility, with the collaboration of
specific banks, with effect from 08-04-2020.

Hence, all taxpayers are hereby informed to adhere to the following instructions in making tax
payments until further notice.

The ATPS is available only with the online banking facilities of the banks designated in the
below Table 01. The respective banks will provide to include relevant information for
making online fund transfers for tax payments. Therefore, taxpayers are kindly requested to
refrain from making online fund transfers in respect of tax payments through any other bank
other than those listed below. In case you attempt to make online tax payments through any
other bank, such payments will not be posted to your ledger in IRD’s RAMIS.

Table – 01 - Banks providing Online Banking Facility for ATPS

01. Bank of Ceylon (BOC)

02. People’s Bank
03. Commercial Bank of Ceylon PLC
04. Nations Trust Bank PLC (NTB)
05. Sampath Bank PLC
06. HSBC

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 07. Cargills Bank Limited
08. National Development Bank (NDB)
09. Standard Chartered Bank (SCB)
10. Seylan Bank PLC
11. Hatton National Bank PLC (HNB)
12. Citibank
13. Deutsche Bank
14. Pan Asia Bank PLC
15. DFCC Bank PLC

Steps to follow in making online fund transfers in respect of tax payments

1. Log-in to Online Banking System of your bank (only if your bank is listed above) and select
Fund Transfer option.
2. Enter the account number “2026529” as the BENEFICIERY ACCOUNT. Please re-
check the account number for accuracy.
3. Enter “Commissioner General of Inland Revenue” or “CGIR” as BENEFICIARY
NAME.
4. Enter “Bank of Ceylon, Taprobane Branch” as the BENEFICIARY BANK.
5. Enter your Payment Reference Code (PRC) as the combination of your TIN and Tax
Type Code without any space in the Reference Cage/Field (the label of reference cage/field
may vary from bank to bank and please refer the Table 02 below).
Please note that indicating your PRC is mandatory.
The syntax for PRC is <TIN><Tax Type Code>.
<TIN>: Taxpayer Identification number (9 Digit), <Tax type code>: (2 Digit)
For example, if your TIN is 123456789 and you are paying VAT, your payment reference
is 12345678970. The Tax Type Code List is given in the Table 03 below.
This payment reference code (PRC) should be entered in the reference cage/field in the
online payment user interface. Ensure to re-check the PRC for accuracy.

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Table – 02 - Bank and its Reference Cage/Field Label
Bank Reference Cage/Field Label
01. Bank of Ceylon (BOC) Description
02. People’s Bank Transaction Remarks
03. Commercial Bank of Ceylon PLC Beneficiary's Account Narration
04. Nations Trust Bank PLC (NTB) Remarks
05. Sampath Bank PLC Transfer Remarks
06. HSBC Your Reference
07. Cargills Bank Limited Reference
08. National Development Bank Remarks
(NDB)
09. Standard Chartered Bank (SCB) Retail - Transfer reference
Corporate – Details of payments
10. Seylan Bank PLC Personal - Beneficiary Reference
Corporate / Mobile - Funds Transfer
Remarks
11. Hatton National Bank PLC (HNB) Credit Remarks
12. Citibank Transactions Reference Number
13. Deutsche Bank Beneficiary Reference
14. Pan Asia Bank PLC Fund Transfer Remarks
15. DFCC Bank PLC **Please contact DFCC via
0112350000 or [email protected] for
instructions

* For finding reference cage/field label, please contact your bank

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 \
Table – 03 - List of Tax Type Code

Tax Type Code

Corporate Income Tax 02
PAYE 03
Dividend Tax 04
Individual Income Tax 05
Tax on Distributable Profit (Deemed Dividend Tax) 08
Partnership Tax 09
Remittance Tax 13
WHT on Interest on Deposits 43
WHT on Specified Fee & Others 44
Value Added Tax (VAT) 70
Value Added Tax on Financial Services (VAT on FS) 75
Economic Service Charge (ESC) 80
Nation Building Tax (NBT) 90
Stamp Duty 60

6. Make sure to SAVE/PRINT the online receipt/reference number given your bank, for
reference in case you need inquire into particular payment on a later stage. A typical online
fund transfer receipt is shown below.
7. Maximum transaction amount may vary from bank to bank. Please make multiple payments
if the maximum amount allowed by your bank is not adequate for your tax payment.
However, if your tax payment is Rs. 20 million or more, you may proceed to perform Real
Time Gross Settlement (RTGS). If you wish to pay the tax through RTGS please contact
one of the IRD Officers listed below keeping your email address ready with you, and follow
the instructions given by the Officer.

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8. Your payment will be posted in ledger in the IRD RAMIS according to the payment
reference code (PRC) you provide when making fund transfer. Hence, you need to be
specific and confirm the numbers before proceeding to pay. Please note that any typing
error or mistake done by you will lead to payment not considered for posting. In such
instances, you may have to claim your payment providing proof to IRD in a later stage.
9. If in any circumstance the payment is not received to CGIR account, you need to
communicate to the bank which you used in making online payment (the bank which
provided you online facility).
10. A typical Online Fund Transfer Confirmation is shown below. This interface may vary
from bank to bank.

INSTRUCTIONS TO COMPLETE THE PAYE ANNUAL DECLARATION AND

SCHEDULES YEAR OF ASSESSMENT 2013/2014
I . Please note that P.A.Y.E. Declaration Form and Schedules have been modified, and
therefore, you are required to use a new set of forms issued herewith.
2. You are strictly advised to submit only one P.A.Y.E Annual Declaration (Form PAYE
94(1)) for all categories of Employees in your Organization.

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3. In case of any difference in particulars printed on the Form PAYE 94(1) such as name
of the organization, address etc., please provide correct and updated information in
the given space (Item
4. It is compulsory to fill all cages and do not keep any cage blank (where not applicable
indicate "N/A").
5. Please give the particulars of the Officer-in-charge of P.A.Y.E matters in your
organization enabling the IRD Officers to have direct communication with regard to
P.A.Y.E matters. (Item B).
6. Failure to remit the correct number of deductions on due date to the Department of
Inland Revenue will be subjected to imposition of penalty.
7. Monthly remittances can be made through any branch of the Bank of Ceylon. Please
remember to indicate the correct particulars such as TIN, sub-TIN and relevant period
etc. correctly in the relevant cages of the PAYE Paying —in- slips.
8. The certificate on the deduction of income tax under PAYE Scheme [TIO (new)]
certified with the official frank should be completed and issued for all the Employees,
from whom the deductions have been made and T certificate should be issued for all
the Directors from whom the tax deductions have been made under Section 117 and
117A.
9. It is advisable to keep a copy of the completed PAYE Annual Declaration and copies
of Schedule 01 and 02 for your reference (T-9A and T-9A(A)).
10. It is pleased to mentioned that Department of Inland Revenue is planning to
computerize PAYE Declarations. For this purpose, it is necessary to obtain the
Employer's annual Declaration, Form T-9A and Form T-9A(A) in electronic form.
Therefore, all the employers registered for PAYE Scheme are kindly requested to
submit an electronic version of the relevant forms to the E mail [email protected] in
addition to the submission of Declaration and Forms manually to the DPRA Unit
(Registered under TIN) or PAYE Branch at Nawam Mawatha (Registered under
PAYE/GOV).
The electronic version of the relevant Forms can be downloaded from the Inland
Revenue website ird.gov.lk. Please make sure not to alter any formula or fields in the
electronic forms.

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 Further, you are requested to use only the electronic forms available in the IRD
website and not to send them using any other formats. You are required to use the
same E- mail account which is mentioned in your Annual Declaration Form (Item B)
for submission of electronic versions of Declaration, Schedules etc.
If you need to change the e-mail account you are required to use the " E-mail
PAYE"form available in the IRD Website.

Guidance to fill the Declaration & Schedules

1. PART 1 of PAYE Annual Declaration - Form PAYE 94 (1)
Number Of Employees
• Enter the number of Employees those who have earned gross remuneration less
than LKR 600,000 per annum, and not made any tax deduction under PAYE, in
Cage A.
• Enter the number of Employees under each range of gross remuneration in Cages
i to vii.
• Enter the number of Employees falls under the Section 117 and 1 17A.
Total Gross Remuneration
Enter the total of gross remuneration eared by each category of Employees.
. Tax Deductions
Enter the P.A.Y.E. deductions made under each category of Employees.
2. PART 2 (A) of PAYE Annual Declaration - Form PAYE 94 (1)
• Exempt Remuneration
Enter the remuneration paid to Employees in each month during the year of assessment
which are exempted under Section 8 of Inland Revenue Act,
• Gross Remuneration below LKR 600 000

Enter the aggregate value of remuneration paid to Employees who earned below
LKR 600,000 per annum but deductions were made under P.A.Y.E due to such payments
exceed LKR SO, 000 in any month/months, in Column "13". Enter the aggregate of such

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 tax deductions made in each month in Column C iii. Gross Remuneration above LKR
600 000
Enter the aggregate of remuneration paid to Employees who earned above LKR
600,000 per annum and the tax deductions made under P.A.Y.E. in Column ' 'D" and "E",
respectively. P.A.Y.E. deducted under Section 117 & 117A of the Inland Revenue Act.
Enter the particulars of payments made and deductions made under Section 117
and 117 A of the Inland Revenue Act , i.e. deductions made according to Table
No.07 of the P.A.Y.E Tax Tables, in Column' 'F" and "G", respectively.
P.A.Y.E. deducted under Sec. 114 1 17 & 117A
Enter the totals of gross remunerations (B+D+F ) and tax deductions (C+E+G )
in each month in Column "H" and "I" , respectively. vi. Remittances Made
Enter the amount of tax remitted to the Department of Inland Revenue in each month
in Column J
3. PART 2 (B) of PAVE Annual Declaration - Form PAVE 94 (1)
Enter the summary particulars of Schedule 02 (Form No. T 9 A (A)), in respective
columns.
4. Schedule I ( Form No. PAYE / T-9A)-Remuneration other than Once- and- for- all Payments
Enter the particulars and totals of figures related to each Employee, including non
residents, (other than Once- and- for- all payments) extracted from PAYE Pay Sheet
(Form No T-6) in respective cages in Schedule 01.
5. Schedule 2 ( Form No. PAYE / T-9A(A) -Terminal Benefits & Once- and- for- all Payments
Enter the particulars and totals of figures relating to Employees who have been
terminated or ceased their employment during the year of assessment. Please note that
only particulars related to Once- and for- all payments, in other words "Terminal
Benefits" should be entered in the Schedule 02 (Form No. T-9A(A) ).
6. PAYE Pay Sheet (Form No. PAVE / T-6)
For the purpose of PAYE , a separate Pay Sheet as per the format given in Form No
PAYE T -6 (PAYE Pay Sheet) should be maintained for each and every Employee of
the Organization .
Please note that PAYE Pay Sheet (Form No. PAYE / T-6) should be kept in your
Organization and should furnish to Department of Inland Revenue only when

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 requested to do so. It should not be furnished along with the Employer's Annual
Declaration.

How to pay deductible PAYE taxes.

• In line with Section 120 (a) of the Inland Revenue Act, the deducted PAYE tax during
a particular month should be remitted to the Commissioner-General of Inland Revenue
Department (IRD) on or before the 15th day of the following month.

• Payments should be made to any branch of Bank of Ceylon, using specified remittance
forms issued by the Inland Revenue Department. Employers should also keep a copy
of the remittance form after making the payment.

• If PAYE taxes are not paid by the due date – An interest equal to 1.5% per month or
part month on the amount of tax will be charged.

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 • In case an employer fails to pay all or part of the PAYE tax for a tax period within 14
days of the due date – A penalty equal to 20% of the due tax amount will be charged.

Furnishing PAYE Returns

Due date:
Return of PAYE Tax (PAYE) for a relevant Assessment Year, should be furnished on or before
30th day of the month of April, of the following Assessment Year.
Submit to:
Central Document Management Unit (CDMU), 1st Floor of Inland Revenue building .

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