Most people glance at the tax line on their payslip, notice it moved since last time, and move on without ever seeing the logic behind it. It feels like a black box, some percentage the bank or the payroll system decided on your behalf.
It isn't a black box. It's a public, published table, and once you see how it actually works, you can predict exactly what happens to your take-home pay at any salary level, not just the one you're on now.
If you have looked at your payslip and wondered why the tax line changes so much between one salary level and the next, the answer sits in a set of progressive tax bands that the Inland Revenue Department introduced through PN/IT/2025-01, effective from 1 April 2025. These are still the bands in force today. No new bands or rates have been introduced for the 2026/2027 tax year that started this April, so if you are reading this in 2026, this is the table your employer is actually using.
A salary of Rs. 150,000 a month currently pays zero income tax. A salary of Rs. 230,000 a month pays just Rs. 4,800 in monthly PAYE, an effective rate of 2.1% on the full salary.
| Taxable income (after relief) | Tax rate |
|---|---|
| First Rs. 1,000,000 | 6% |
| Next Rs. 500,000 | 18% |
| Next Rs. 500,000 | 24% |
| Next Rs. 500,000 | 30% |
| Balance above Rs. 2,500,000 | 36% |
These figures come directly from PN/IT/2025-01. Note that the personal relief itself is not a band, it is an amount that is entirely tax free before any of these rates apply.
Employers do not wait until year end to apply these bands. They deduct tax monthly under the Advance Personal Income Tax (APIT) system, using a simplified monthly version of the same bands, published as Tax Table No. 01. This is the table that determines the number on your payslip.
| Monthly regular income | Monthly tax formula |
|---|---|
| Up to Rs. 150,000 | No tax |
| Rs. 150,000 to Rs. 233,333 | 6% of income, less Rs. 9,000 |
| Rs. 233,333 to Rs. 275,000 | 18% of income, less Rs. 37,000 |
| Rs. 275,000 to Rs. 316,667 | 24% of income, less Rs. 53,500 |
| Rs. 316,667 to Rs. 358,333 | 30% of income, less Rs. 72,500 |
| Above Rs. 358,333 | 36% of income, less Rs. 94,000 |
The "less a fixed amount" structure looks unusual at first, but it exists so that the monthly deduction lines up exactly with what the annual bands would produce if you divided the year into twelve equal months. It is not a separate or different set of rules, it is the same bands expressed as a shortcut formula.
Here is what this looks like in practice for two different monthly salaries, each with the standard 8% employee EPF contribution deducted as well.
| Rs. 150,000 salary | Rs. 230,000 salary | |
|---|---|---|
| Gross annual salary | Rs. 1,800,000 | Rs. 2,760,000 |
| Personal relief | Rs. 1,800,000 | Rs. 1,800,000 |
| Taxable income | Rs. 0 | Rs. 960,000 |
| Annual tax | Rs. 0 | Rs. 57,600 |
| Monthly PAYE | Rs. 0 | Rs. 4,800 |
| Monthly EPF (8%) | Rs. 12,000 | Rs. 18,400 |
| Net take-home | Rs. 138,000 | Rs. 206,800 |
| Effective tax rate | 0.0% | 2.1% |
The Rs. 150,000 salary sits exactly at the personal relief threshold, so its entire annual income of Rs. 1,800,000 is tax free. Only the 8% EPF deduction reduces take-home pay, bringing it down to Rs. 138,000.
The Rs. 230,000 salary crosses into taxable territory. Its taxable income of Rs. 960,000 falls entirely within the first band (since it is under Rs. 1,000,000), so the whole amount is taxed at 6%, giving Rs. 57,600 a year, or Rs. 4,800 a month. Applying the monthly shortcut formula directly gives the same answer: 6% of Rs. 230,000 is Rs. 13,800, less Rs. 9,000, equals Rs. 4,800.
Methodology note: figures calculated using the current IRD annual tax bands and monthly withholding table, applying the Rs. 1,800,000 personal relief and 8% employee EPF contribution, as confirmed by PN/IT/2025-01, APIT Tax Table No. 01, and the Central Bank of Sri Lanka's EPF contribution rates.
Sources
the Inland Revenue Department's notice introducing the current personal income tax bands and Rs. 1,800,000 personal relief, effective 1 April 2025.
the Inland Revenue Department's official monthly withholding table used by employers to calculate PAYE deductions under the Advance Personal Income Tax system.
confirms the 8% employee and 12% employer EPF contribution rates.
the Inland Revenue Department's published calendar of filing and payment deadlines for the 2026 tax year.
