Doctors in private practice, consultants, tuition teachers, designers, salon owners, delivery riders — if you earn from local clients without an employer, nobody deducts your tax, nobody files for you, and the IRD still expects both. This is the plain-language version of what you owe, when, and the deductions most self-employed people never claim.
What you pay: same rates as everyone else
Self-employed income is taxed at the same rates as a salary. Your first Rs. 1.8 million a year is relief (tax-free); above that, the slabs run 6% on the first Rs. 1 million, then 18%, 24% and 30% on the next Rs. 500,000 each, and 36% on the balance (IRD Notice PN/IT/2025-01). The difference isn’t the rate — it’s that you do the employer’s job: estimate, pay quarterly, and file.
The 5% that vanishes before you’re paid
If companies pay you professional or service fees — the IRD’s notice names doctors, engineers, accountants, lawyers, software developers, lecturers, and commission agents — they must deduct 5% Advance Income Tax whenever they pay you more than Rs. 100,000 in a calendar month. Two things to know (IRD Notice PN/IT/2022-03):
- Once you cross Rs. 100,000, the 5% applies to the whole payment, not just the excess.
- It’s an advance, not a final tax — every rupee is a credit you claim back in your return. Skip filing and you donate it.
Similar advance taxes: 10% on rent paid to you above Rs. 100,000/month, and 10% on your bank interest (if your total income is under the relief threshold, hand your bank a self-declaration and the interest deduction stops — IRD Circular SEC/2025/E/02).
Your tax calendar
| Date | What’s due |
|---|---|
| 15 Aug | 1st quarterly instalment + Statement of Estimated Tax |
| 15 Nov | 2nd instalment |
| 15 Feb | 3rd instalment |
| 15 May | 4th instalment |
| 30 Sep | Final balance for the year ended 31 March |
| 30 Nov | Annual income tax return |
Source: IRD Tax Calendar; instalment duty under s.90 of the Inland Revenue Act. A TIN is mandatory for all adults since Jan 2024; add the Income Tax type once income passes the relief threshold.
The deductions most people never claim
You’re taxed on profit, not turnover. Any expense incurred in producing your income is deductible (IRA s.11) — and this is where the self-employed routinely overpay:
- Premises & running costs — rent for your clinic, studio or shop; electricity, water and connectivity for the business.
- People — staff salaries (plus their EPF/ETF), a locum, an assistant, subcontractors.
- Equipment over time — computers, medical or salon equipment, furniture and vehicles are claimed as capital allowances over 5 years (buildings over 20) rather than all at once (Fourth Schedule).
- Professional costs — indemnity insurance, council/CIMA/SLMC-type registrations, subscriptions, CPD, accounting fees.
- Supplies & stock — consumables, materials, software licences.
And the traps that disallow a deduction (IRA s.10): private and household spending, entertainment, fines, income tax itself — and any cash payment of Rs. 500,000 or more made outside banking channels. Pay big suppliers through the bank or lose the deduction.
Housekeeping the law actually requires
- Accrual accounting is mandatory for business income (IRA s.21(3)) — you record income when earned, not when the cash arrives. There’s no cash-basis option for the self-employed.
- Keep records for 5 years, in Sri Lanka, sufficient to show your profits (s.120) — invoices, receipts, bank statements.
- VAT is a separate question: registration triggers at Rs. 15 million of taxable supplies per quarter or Rs. 60 million per year — thresholds the 2026 VAT amendment kept unchanged (IRD Notice SEC/PN/VAT/2026-03). Most solo practitioners are under it; a growing practice should watch it.
- Foreign clients too? That slice of your income may qualify for a 15% ceiling — see our guide to tax on foreign-currency income.
Deductibility always turns on your specific facts, and rates or thresholds can change with a Budget. These are suggestions, not advice — confirm your numbers with a Chartered Accountant or tax practitioner before acting on them.
Evidence for the claims above
- Rates & relief: IRD Notice PN/IT/2025-01
- 5% AIT on service fees, 10% on rent: IRD Notice PN/IT/2022-03; creditable via Schedule 7 of the individual return guide
- Deductions, disallowed items, accrual rule, records, instalments: Inland Revenue Act No. 24 of 2017, consolidated (ss.10, 11, 16, 21, 90, 120, Fourth Schedule)
- Deadlines: IRD Tax Calendar · VAT thresholds: SEC/PN/VAT/2026-03
What the self-employed ask most.
The same rates as an employee: your first Rs. 1.8 million of annual profit is covered by personal relief, then 6% on the next Rs. 1 million, 18%, 24% and 30% on the following Rs. 500,000 slabs, and 36% above that. The key difference is that you're taxed on profit after business expenses, and you pay it yourself in quarterly instalments rather than through a monthly payroll deduction.
Anything genuinely incurred in producing your income: workspace rent and utilities, staff and subcontractors, professional insurance and registrations, supplies, software, and accounting fees. Equipment is claimed over five years as capital allowances. Not deductible: private spending, entertainment, fines — and any cash payment of Rs. 500,000 or more made outside the banking system.
That's Advance Income Tax. Companies must deduct 5% when they pay a resident individual more than Rs. 100,000 in a month for professional or independent services — and it applies to the full amount once you cross the threshold. It isn't an extra tax: it's a prepayment credited against your annual bill when you file your return. If you don't file, you simply lose that money.
Quarterly instalments, AIT credits, deductions — or just see it all in one return.
LankanTax organises your income, expenses and AIT credits into a ready-to-lodge return — free for individuals, reviewed and lodged by a Chartered Accountant.
Free for individuals. Your CA’s professional fee is the only cost — shown upfront.