How Salary Tax / APIT Works in Sri Lanka
A practical guide to salary tax, APIT, basic salary, allowances, overtime, bonus payments, employee EPF, employer EPF, ETF, take-home pay, and total employer payroll cost in Sri Lanka.
This guide uses publicly available Sri Lankan tax, IRD, Customs, Provincial Revenue, or government information available at the time of writing. Tax rates, thresholds, forms, exemptions, valuation treatment, import rules, and filing requirements can change. Always confirm final amounts with the relevant authority or a qualified professional before making financial, tax, legal, property, import, or business decisions.
What is APIT?
APIT means Advance Personal Income Tax. For employees, it is the tax that an employer may deduct from employment income and pay to the Inland Revenue Department on behalf of the employee.
In everyday language, people often call this salary tax, PAYE tax, or tax deducted from salary. The exact payroll calculation depends on IRD rules, the employee’s declaration, taxable benefits, and the type of payment being made.
Is salary tax only calculated on basic salary?
No. For tax purposes, employment income can be broader than basic salary. Regular employment income can include salary, wages, commission, overtime, travelling allowance, other allowances, fees, pension, and similar employment-related payments.
Some non-cash or employer-provided benefits can also be taxable, such as housing, transport, phone bills, utilities, entertainment benefits, or other benefits depending on the facts and IRD treatment.
Basic salary vs gross salary
Gross salary usually means the total regular earnings before employee tax and employee deductions. It may include basic salary plus allowances, overtime, commission, incentives, and taxable benefits.
There is no single universal official rule that says every employer must set basic salary as a fixed percentage of gross salary. Different employers structure salary packages differently. Some employers may use a higher basic salary and lower allowances. Others may use a lower basic salary and higher allowances.
| Payroll item | Simple meaning | Why it matters |
|---|---|---|
| Basic salary | Main fixed salary component. | Often used in employment contracts and internal payroll structure. |
| Allowances | Additional fixed or variable monthly payments. | May be taxable and may also affect contribution calculations depending on treatment. |
| Gross regular income | Total regular monthly employment earnings. | Useful for estimating APIT and take-home salary. |
| Net salary / take-home | Amount received after employee-side deductions. | This is what the employee usually receives into the bank account. |
What payments may be included in regular employment income?
A practical salary tax calculator should not only ask for “gross salary.” It should allow the user to break down the monthly salary into components, because different employees can have very different pay structures.
How salary tax is usually estimated
A simple monthly salary tax estimate usually annualizes regular monthly employment income and applies the annual personal relief and individual income tax bands.
| Step | Simple formula | Plain-English meaning |
|---|---|---|
| 1. Regular monthly income | Basic + allowances + OT + commission + benefits | Estimate the regular monthly taxable employment income. |
| 2. Annualized income | Regular monthly income × 12 | Convert monthly income into an annual estimate. |
| 3. Personal relief | Deduct annual personal relief where applicable | Reduce annual taxable income before normal bands. |
| 4. Annual tax | Apply progressive tax bands | Estimate total annual income tax. |
| 5. Monthly APIT | Annual tax ÷ 12 | Estimate monthly salary tax deducted by employer. |
2025/2026 individual income tax bands
For a simplified salary estimate, annual personal relief is applied first, then progressive individual income tax bands are applied to the balance. The calculator uses these bands as an estimate.
| Taxable income after relief | Rate | Plain-English meaning |
|---|---|---|
| First LKR 1,000,000 | 6% | The first band after annual relief. |
| Next LKR 500,000 | 18% | The next portion is taxed at 18%. |
| Next LKR 500,000 | 24% | The next portion is taxed at 24%. |
| Next LKR 500,000 | 30% | The next portion is taxed at 30%. |
| Balance | 36% | Remaining taxable income is taxed at 36%. |
This type of annualized estimate is useful for planning, but an employer’s actual APIT deduction can differ because the employer must follow official APIT tables and the employee’s declaration status.
How EPF and ETF work in the salary calculation
A complete salary calculator should show employee EPF, employer EPF, and ETF separately. The employee EPF portion reduces take-home salary. Employer EPF and ETF are employer-side costs and do not reduce the employee’s take-home pay.
| Contribution | Typical rate | Who pays? | Does it reduce take-home salary? |
|---|---|---|---|
| Employee EPF | 8% | Employee, deducted by employer | Yes |
| Employer EPF | 12% | Employer | No |
| Employer ETF | 3% | Employer | No |
Example: monthly salary of LKR 250,000
Here is a simple example where the employee earns LKR 250,000 regular monthly gross employment income, has employee EPF at 8%, and has no additional deductions.
| Step | Calculation | Amount |
|---|---|---|
| Regular monthly gross income | Amount entered by user | LKR 250,000 |
| Annualized income | 250,000 × 12 | LKR 3,000,000 |
| Personal relief | Annual relief | LKR 1,800,000 |
| Taxable income after relief | 3,000,000 − 1,800,000 | LKR 1,200,000 |
| Estimated annual tax | 1,000,000 × 6% + 200,000 × 18% | LKR 96,000 |
| Estimated monthly APIT | 96,000 ÷ 12 | LKR 8,000 |
| Employee EPF | 250,000 × 8% | LKR 20,000 |
| Estimated take-home pay | 250,000 − 8,000 − 20,000 | LKR 222,000 |
| Employer EPF | 250,000 × 12% | LKR 30,000 |
| Employer ETF | 250,000 × 3% | LKR 7,500 |
| Approximate employer cost | 250,000 + 30,000 + 7,500 | LKR 287,500 |
How overtime and bonus can affect salary tax
Overtime and commission can increase regular employment income and may increase monthly APIT. A bonus, leave encashment, salary arrears, or similar payment can be treated as a lump-sum payment and may need separate tax treatment.
For planning, a calculator can show an approximate bonus tax impact by comparing the estimated annual tax before and after the bonus. However, the final employer deduction may follow official IRD APIT lump-sum tables and payroll rules.
| Payment type | Simple treatment in calculator | Important note |
|---|---|---|
| Overtime | Added to regular monthly employment income. | Can increase annualized income and APIT estimate. |
| Commission / incentives | Added to regular monthly income if paid regularly. | Actual payroll treatment can differ. |
| Bonus / lump-sum | Shown as approximate extra tax impact. | Official APIT lump-sum rules may apply. |
Why your real salary tax may differ
A calculator can give a useful first estimate, but the real amount deducted by your employer can differ because payroll depends on your actual payslip, declaration status, benefit valuation, payment timing, and employer interpretation of the rules.
- basic salary and allowances split,
- overtime, incentives, and commission,
- bonus and salary arrears,
- non-cash benefits such as vehicle or housing,
- no-pay leave or unpaid days,
- employee loans or salary advances,
- reimbursements versus taxable allowances,
- secondary employment,
- resident or non-resident status,
- employment contract terms,
- actual EPF/ETF-liable earnings base, and
- updates to IRD, EPF, ETF, or Labour Department guidance.
Use the calculator
The Salary Tax Calculator lets you estimate APIT, take-home salary, employee EPF, employer EPF, employer ETF, bonus tax impact, and total employer cost. If you only know gross salary, you can use the simple split feature. If you have a payslip, use the detailed fields.