The government has proposed raising the monthly income tax-free threshold for salaried workers from Rs. 150,000 to Rs. 162,500 under the 2027 Budget, which President Anura Kumara Dissanayake presented to Parliament on Thursday.
The President, who also holds the Finance portfolio, proposed lifting the annual personal income tax relief from Rs. 1.8 million to Rs. 1.95 million. Individuals earning monthly salaries and allowances of up to Rs. 162,500 would not pay income tax on them.
The Budget Speech also proposes a new 12 percent tax rate after the first 6 percent bracket, replacing the existing 18 percent rate at that level. The proposed rates would be 6, 12, 18, 24, 30 and 36 percent. The income bands that follow would be widened from Rs. 500,000 to Rs. 600,000.
The monthly income at which the highest rate applies would rise from Rs. 358,000 to Rs. 433,000, according to the Budget Speech.
The document says the changes would give individual taxpayers additional monthly relief of between Rs. 750 and Rs. 15,750, depending on taxable income. Combined with the tax reforms introduced in 2025, total monthly relief would range from Rs. 4,250 to Rs. 36,250.
The amendments are proposed to take effect on 1 April 2027. They remain proposals and must pass through the legislative process before they become law.
Background
Personal income tax in Sri Lanka is governed by the Inland Revenue Act, No. 24 of 2017. The Budget Speech says the new proposals are amendments to that Act, aimed at giving individual taxpayers further income tax relief.
The Budget Speech refers to tax reforms introduced in 2025 and counts their effect together with the new proposals when it gives the total relief range. Under the Pay-As-You-Earn (PAYE) system, employers deduct income tax from salaries each month, so changes to the threshold and the rate bands show up directly in take-home pay.
Budget proposals in Sri Lanka are first announced in the Budget Speech. They become binding only after Parliament passes the necessary legislation, which is why the speech describes the measures as proposals.
What it means
If the proposals are passed as announced, employees earning up to Rs. 162,500 a month would pay no income tax on their salaries and allowances from April 2027.
Those earning above that level would still pay tax, but at lower rates in some bands, and the Budget Speech estimates their monthly saving at between Rs. 750 and Rs. 15,750. Workers should check with their employer’s payroll department once the legislation is passed to see how the change applies to their own salary, and the Inland Revenue Department can advise on individual cases.
