Fixed Deposit Interest Tax in Sri Lanka Explained
A simple guide to how tax on fixed deposit interest is usually estimated in Sri Lanka, including bank tax deduction, AIT/WHT, monthly interest, maturity value, and when a self-declaration may be relevant.
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 fixed deposit interest tax?
When you place money in a fixed deposit, the bank or financial institution pays interest. In Sri Lanka, tax may be deducted from that interest before the money is paid to you. This deduction is commonly referred to as AIT or WHT on interest.
In simple terms, if your fixed deposit earns interest, the bank may deduct tax from the interest amount and pay you the balance. The amount you actually receive can therefore be lower than the gross interest shown by the interest rate.
What do AIT and WHT mean?
AIT means Advance Income Tax. WHT means Withholding Tax. For normal users, both terms are often understood as tax deducted before the interest is paid to the customer.
The bank or financial institution acts as the withholding agent. It deducts the relevant tax amount from the interest payment and reports/pays it according to the applicable tax rules.
Current simple tax rate used
The simple rate used in this guide and calculator is 10% on fixed deposit interest. This means that if your fixed deposit earns LKR 100,000 in interest before tax, the estimated tax deducted by the bank would be LKR 10,000.
| Interest before tax | Tax rate used | Estimated tax deducted | Interest after tax |
|---|---|---|---|
| LKR 100,000 | 10% | LKR 10,000 | LKR 90,000 |
| LKR 500,000 | 10% | LKR 50,000 | LKR 450,000 |
| LKR 1,000,000 | 10% | LKR 100,000 | LKR 900,000 |
Actual treatment can depend on the bank, the customer, the type of account, exemption status, self-declaration status, resident/non-resident status, and IRD treatment.
How fixed deposit interest is calculated
A simple fixed deposit interest estimate usually starts with the deposit amount, annual interest rate, and term. If the term is less than one year, the annual rate is adjusted for the number of months in the deposit period.
| Step | Simple formula | Explanation |
|---|---|---|
| Interest before tax | Deposit × annual rate × term months ÷ 12 | Estimates gross interest for the selected fixed deposit period. |
| Tax deducted | Interest before tax × 10% | Estimates the bank tax deduction on interest. |
| Interest after tax | Interest before tax − tax deducted | Estimates the interest you may receive after deduction. |
| Total at maturity | Deposit amount + interest after tax | Estimates the total amount after adding net interest. |
Example: LKR 20 million fixed deposit
Here is a simple example using a fixed deposit amount of LKR 20,000,000, an annual interest rate of 12.5%, and a 12-month term.
| Item | Calculation | Amount |
|---|---|---|
| Fixed deposit amount | Amount placed in FD | LKR 20,000,000 |
| Annual interest rate | Rate entered | 12.5% |
| FD term | Selected term | 12 months |
| Interest before tax | 20,000,000 × 12.5% | LKR 2,500,000 |
| Tax deducted by bank | 2,500,000 × 10% | LKR 250,000 |
| Interest after tax | 2,500,000 − 250,000 | LKR 2,250,000 |
| Total amount at maturity | 20,000,000 + 2,250,000 | LKR 22,250,000 |
This is only a simple estimate. Some fixed deposits pay interest monthly, some pay at maturity, and banks may apply their own product rules and documentation requirements.
Monthly interest before and after tax
If you choose monthly interest payments, the annual interest estimate can be divided by 12 to understand the approximate monthly interest before tax and after tax.
| Item | Simple calculation | Estimated monthly amount |
|---|---|---|
| Monthly interest before tax | LKR 2,500,000 ÷ 12 | About LKR 208,333 |
| Monthly tax deducted | LKR 250,000 ÷ 12 | About LKR 20,833 |
| Monthly interest after tax | LKR 2,250,000 ÷ 12 | About LKR 187,500 |
This is helpful when comparing monthly FD interest income against living expenses, loan payments, or other monthly cash flow needs.
What is a no-tax self-declaration?
Some resident individuals may be able to submit a self-declaration to a bank or financial institution asking them not to deduct AIT/WHT from interest. This is usually relevant where the person’s assessable income from all sources does not exceed the applicable threshold for the year of assessment.
For the 2025/2026 year of assessment, IRD circular guidance refers to resident individuals receiving interest whose assessable income from all sources must not exceed LKR 1,800,000.
| Self-declaration point | Plain-English meaning |
|---|---|
| Resident individual | The declaration route is generally for Sri Lanka resident individuals. |
| Interest income | The person receives or derives interest from a bank or financial institution. |
| Income check | Assessable income from all sources should not exceed the relevant threshold. |
| Bank acceptance | The bank or financial institution must accept/process the declaration according to rules. |
Should FD interest be included in personal income tax?
Fixed deposit interest can be part of your broader personal income tax picture. Even if tax is already deducted by the bank, the gross interest and tax deducted may still matter when estimating your full annual tax position.
This is why the Personal Income Tax Calculator includes a field for FD or bank interest before tax and a separate field for tax already deducted. In a full estimate, you may need to include the income and then separately account for tax already paid or deducted.
When a simple FD estimate may be wrong
A calculator can help with planning, but actual FD treatment can vary depending on your facts and the bank’s product structure.
- monthly interest versus maturity interest,
- compound interest products,
- early withdrawals,
- renewals and rollover deposits,
- joint deposits,
- resident versus non-resident status,
- foreign currency deposits,
- special deposit accounts,
- self-declaration eligibility,
- exempt interest, and
- changes in IRD notices or bank requirements.
Use the calculator
The FD Interest Tax Calculator helps you estimate interest before tax, bank tax deducted, interest after tax, monthly interest, and total amount at maturity.