Tax Planning
Sri Lanka | Capital Gains, Enhanced Capital Allowances & Self-Declarations for Interest Income
Sri Lanka’s 2026 Amending Act brings material changes: updated CGT rates, enhanced allowances for large investments, and streamlined rules for resident individuals receiving interest.
By NomadicTax Research Team • 5-8 min read • August 11, 2026
## Major Tax Updates in Sri Lanka Under the Inland Revenue (Amendment) Act No. 11 of 2026
The Act, certified on **3 June 2026**, introduced several important reforms for the **Year of Assessment 2026-2027**, especially for capital gains, interest income, and investment incentives. ([ird.gov.lk](https://www.ird.gov.lk/en/type%20of%20taxes/sitepages/income%20tax.aspx?menuid=1201&utm_source=openai))
### 1. Revised Capital Gains Tax (CGT) Rates
With effect from **3 June 2026**, Sri Lanka revised CGT rates:
- Individuals and partnerships: **15%**
- Trusts, unit trusts/mutual funds, NGOs: **30%** ([ird.gov.lk](https://www.ird.gov.lk/ta/Lists/Latest%20News%20and%20Notices/Attachments/775/SEC_PN_IT_2026-02.pdf?utm_source=openai))
### 2. Enhanced Capital Allowances (ECA)
If you invest in **depreciable tangible assets** (non-intangible) in a **new business undertaking** exceeding **USD 250,000**, the ECA entitles you to **100% depreciation write-off** in the year of acquisition. This is effective from **1 April 2026**. ([ird.gov.lk](https://www.ird.gov.lk/ta/Lists/Latest%20News%20and%20Notices/Attachments/775/SEC_PN_IT_2026-02.pdf?utm_source=openai))
### 3. Waiver of Interest for Certain Late or Under-Payments
Interest penalties on late or under-paid taxes (including surcharge and levy) up to the **Year of Assessment 2024-2025** will be **waived** — provided the **principal tax** is paid in full by **2 December 2026**. ([ird.gov.lk](https://www.ird.gov.lk/ta/Lists/Latest%20News%20and%20Notices/Attachments/775/SEC_PN_IT_2026-02.pdf?utm_source=openai))
### 4. Self-Declaration to Avoid Withholding Tax on Interest Income
Resident individuals earning interest from banks/financial institutions who have **no taxable income** (i.e. assessable income ≤ **LKR 1,800,000**) can **submit a self-declaration** to **avoid withholding tax (WHT)** on that interest. This applies from **Y/A 2026-2027** onward. ([ird.gov.lk](https://www.ird.gov.lk/en/Lists/Latest%20News%20%20Notices/Attachments/779/SEC_PN_IT_2026-01_E.pdf?utm_source=openai))
## Who Should Take Note
- **Investors, trusts, NGOs** realizing capital gains — new rates may change your tax liability materially.
- **Entrepreneurs or companies** investing heavily in fixed assets above USD 250,000: consider optimizing your Capex to leverage ECA.
- **Resident individuals** with modest incomes and interest earnings: consider self-declaration to improve cashflow.
- Taxpayers who historically paid interest or late penalty interest: time-bound opportunity to regularize without interest charges.
## Practical Examples
- **Ms. A**, a resident individual who sells shares for a profit will now pay 15% CGT, down from the previous higher tier.
- **Company B** invests in plant & machinery worth USD 300,000 to set up manufacturing: entire machine-cost can be written off immediately via ECA.
- **Mr. C**, who earns LKR 1.6 million (incl interest) this year is eligible to avoid WHT on interest by submitting self-declaration, saving upfront deduction.
## Action Steps to Benefit
- Review your investments and project planned disposals to compute tax under new CGT rates.
- If planning a large investment, ensure you have documentation to show it’s a **new business undertaking**, costs of each depreciable asset, and that the USD threshold is met.
- For interest income and no other taxable income, submit self-declaration timely to your bank/financial institution.
- Pay any outstanding principal tax by 2 December 2026 to benefit from interest waiver.
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These reforms reflect Sri Lanka’s push for investment-friendly policies and easing compliance burdens. With some strategic planning, taxpayers can optimize outcomes under the new amendments.