How to Cancel 10% Tax Deduction on Interest Income in Sri Lanka

Apr 1, 2025
How to Cancel 10% Tax Deduction on Interest Income in Sri Lanka

From 1st April 2025, a 10% Withholding Tax (WHT/AIT) will be deducted from your interest income by your bank or financial institution before the payment is made to you.

This is an increase from the 5% rate, which had been in effect until 31st March 2025.

If you are an individual whose total assessable annual income does not exceed Rs. 1.8 million, you are not liable to pay income tax under the new regulations effective from 1st April 2025.

Unless you act as explained below, 10% WHT will still be deducted from your interest income, even if you are not liable to pay income tax. In that case, you will need to go through the Inland Revenue Department’s refund process to claim the overpaid tax, which can be time-consuming and inconvenient.

To avoid this unnecessary deduction, the Inland Revenue Department has introduced a mechanism that allows individuals below the tax-free threshold to submit a self-declaration form, requesting not to deduct WHT on their interest income.

This self-declaration must be submitted to each bank or financial institution where you earn interest, before the interest is paid, to ensure the tax (WHT/AIT) is not deducted at source.

Who Can Submit a Self-Declaration?

You must meet the following three conditions to submit a valid self-declaration:

  1. You must be a resident individual of Sri Lanka (as per the Inland Revenue Act, No. 24 of 2017);
  2. You should earn interest income from banks or financial institutions, and
  3. You should have a total assessable income from all sources not exceeding Rs. 1,800,000 for the relevant year of assessment.

Assessable income includes income from employment, business, investments (such as interest, rent), and any other sources during the year.

Banks and financial institutions include licensed commercial and specialized banks, and non-bank institutions authorized by the Central Bank to accept deposits.

How to Submit the Self-Declaration

Eligible individuals can download the self-declaration form from the Inland Revenue Department’s official website. The IRD has advised that only the form published on their website should be used for this purpose. You may also access the form using the links below, available in the language of your choice.

  • Self-declaration form in English - Download
  • Self-declaration form in Sinhala - Download
  • Self-declaration form in Tamil - Download

Once completed, it must be submitted to each bank or financial institution where you earn interest before they process interest payments.

You must also obtain a Taxpayer Identification Number (TIN) to complete this submission.

Important Points to Remember

While the form is straightforward, here are key rules summarized from the Inland Revenue Circular (SEC/2025/E/03) to ensure your declaration is valid and effective:

  • A new form must be submitted every year, as declarations are valid only for one year of assessment (April 1 to March 31).
  • If you have deposits in multiple banks, submit separate declarations to each.
  • If you open a new deposit, your previous declaration becomes invalid—you must file a fresh one.
  • For minor children, a parent or guardian can submit the declaration. The guardian’s NIC and TIN must be included.
  • Joint account holders must submit separate declarations for their respective shares of interest.
  • Submit the declaration before interest is paid. If tax is deducted before submission, the bank cannot refund it, but you may claim it from the IRD later.
  • All information provided must be truthful and accurate. The IRD will use automated systems to verify the declarations. If incorrect or misleading data is found, the declaration will be deemed invalid and the bank will resume deducting tax.
  • False declarations are subject to penalties under Section 181 of the Inland Revenue Act.

Example

A retired individual with no employment income but who earns Rs. 1.4 million in bank interest and Rs. 200,000 from part-time services will have a total income of Rs. 1.6 million. Since this is below Rs. 1.8 million, they can submit the self-declaration form to the bank and cancel the 10% tax (WHT/AIT) from being deducted.

If your total income falls under the personal relief limit of Rs. 1.8 million, it is your right to be exempt from WHT on interest. Submitting a self-declaration early helps you avoid going through the refund process later.

Make sure you're prepared well before April 1, 2025, to protect your income. For any clarifications, reach out to our experts.

For your reference, you can access the official Inland Revenue Department (IRD) circular related to this process in all three languages. Please use the links below to view or download the circular in your preferred language:

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