What AIT is
Advance Income Tax is the name the Inland Revenue Act gives to withholding on interest and discount income. The bank is the withholding agent: it takes 10% of the interest, pays it to the IRD under your TIN, and issues you a certificate. The full interest, before AIT, is part of your assessable income for the year; the AIT is subtracted from your final tax bill. The mechanics are the same as for other withholding taxes.
How much is deducted
| Period | AIT on interest |
|---|---|
| 1 January 2023 to 31 March 2025 | 5% |
| From 1 April 2025 | 10% |
Inland Revenue (Amendment) Act No. 2 of 2025; IRD Tax Chart Y/A 2025/26.
Example: a Rs 5,000,000 fixed deposit at 9% earns Rs 450,000 a year. The bank credits Rs 405,000 and sends Rs 45,000 to the IRD as AIT in your name.
Stopping the deduction with a self-declaration
If your total income for the year of assessment, counting the interest, salary, rent and everything else, will not exceed the Rs 1.8 million personal relief, you do not owe income tax and the bank should not withhold. You tell the bank this by signing its self-declaration form (each bank has its own version of the IRD format). Once it is on file the bank pays interest gross.
- Retirees living on deposit interest of under Rs 150,000 a month are the typical case.
- Joint accounts: each holder’s share is assessed against their own income; the declaration is given by the holder whose income is under the threshold.
- Give the declaration to every bank where you hold deposits; one bank does not tell another.
- If your income later rises above Rs 1.8 million, withdraw the declaration. A false or misleading self-declaration now carries a penalty of up to Rs 200,000 under section 178A, added by the Inland Revenue (Amendment) Act No. 11 of 2026, and the IRD can bar you from giving another.
Senior citizens
There is no longer a separate senior-citizen exemption from AIT; the earlier Rs 1.5 million interest exemption was repealed. A senior citizen whose total income, including interest, is under Rs 1.8 million uses the same self-declaration as anyone else. A senior citizen above the threshold pays AIT and settles the difference through the return like every other taxpayer.
Getting AIT refunded
If AIT was deducted but your final tax is lower than the total credits, the difference is refunded. To claim it:
- Collect the AIT certificate from each bank (most are downloadable from online banking; otherwise ask the branch). It shows gross interest and tax deducted.
- Register for a TIN if you do not have one, then file an income tax return by 30 November, entering the interest and the AIT as a credit.
- The portal computes the refund. Refunds up to Rs 180,000 are fast-tracked and should arrive within three months.
You must claim within 30 months of the end of the year of assessment. Employees whose only income apart from salary is interest of Rs 5,000 or less are excused from filing altogether (section 94(1)(d), from Y/A 2025/26); above that, if you want the AIT back, you file.
Declaring interest on your return
Interest is investment income. On the return you enter the gross interest per bank, and the AIT deducted per bank, in the investment income schedule. The income tax calculator has a fixed-deposit line that does this arithmetic and tells you whether you are owed a refund or have a balance to pay.