Operational Level

OL 4: Business Law & Taxation

(BLT)
SUPPLIMENT TO INCORPORATE THE LATEST
AMENDMENTS
[Taxation Part of the Study Text is revised by incorporating the amendments
brought through Inland Revenue (Amendment) Act No. 10 of 2021 and
Value Added Tax (Amendment) Act No. 09 of 2021]
Note that some amendments have been backdated as given in those amendment
Acts. The important & relevant amendments are included in this document
giving page & paragraph references of the original textbook issued by CMA.
SUPPLIMENT TO THE CMA OPERATIONAL LEVEL ORIGINAL TAXATION TEXTBOOK (BLT – OL 04)

Textbook Description
Page No.
168 The following to be added at the end of paragraph 1.4;
Please note that the NBT is abolished with effect from 01.12.2019 while the ESC is abolished
with effect from 01.01.2020.
170 The content in the second box given in the later part of paragraph 1.5.2.1, to be changed to
read as follows;
Taxable Income =
Assessable Income (AI) xx
Less; Qualifying Payments & relief Deductions (xx)
[qualifying payments and reliefs applicable to individuals (personal allowance
of Rs. 3,000,000/-, 25% repair & maintenance allowance on rent income,
expenditure relief up to Rs. 1,200,000 (for details refer para 3.1.3.1) and own
investment/ capital repayment of such loans up to Rs. 600,000 p.a. on solar
panels fixed on premises and connected to national grid.]
Taxable Income (TI) xxx
173 To the end of item (iv) – Final Withholding Payment - of Para 1.5.2.2, following part to be
added newly;

“88(1A) For the purposes of this Act, the following shall, on or after January 1, 2020, be the
final withholding payments: -
(a) amounts paid as winnings from a lottery, reward, betting or gambling, other than
amounts received in conducting a business consisting of betting and gaming;
(b) payments made to a non-resident person who is not a citizen of Sri Lanka or to a
nonresident entity that is subject to withholding under this Division, other than payments
derived through a Sri Lankan Permanent Establishment; and
(c) interest paid to or treated as being derived by a non-resident individual who is a citizen of
Sri Lanka:
Provided however, the following interest amounts shall not be deemed as final withholding
payments to such non-resident individual who is a citizen of Sri Lanka: -
(i) such amount of interest paid and falling within the relief threshold in paragraph 2(a)
of the Fifth Schedule to this Act; or
(ii) such amount calculated by deducting the total of other sources of assessable income
(total assessable income other than interest) from the relief threshold if the total of
assessable income from other sources does not exceed the relief threshold.”;
175 Para 1.6.4 - Residency Rule Applicable to Companies – Wordings to be changed to read as
 follows;
A Company shall be resident for a year of assessment if;
• It is incorporated or formed under the laws of Sri Lanka,
• It is registered or the principal office is in Sri Lanka, or
• The management and control of the affairs of the company are exercised in Sri Lanka.
180 Item (iii) & (vi) of para 2.2.3 - Exclusions from Employment Income [Sec. 5(3)], to be
amended by adding the words given in Arabic letters as follows;

(iii) A discharge or reimbursement of person’s dental, medical or health insurance expenses

where the benefit is available to all full-time employees in the same grade of the service,
on equal terms,
(vi) Contributions made by an employer to an employee’s account with a pension,
provident, gratuity or savings fund or savings society approved by Commissioner
General.

In para 2.2.4 - Exempted Employment Income (Section 9 read along with Third Schedule)
the content under 3rd bullet to be amended by adding the words given in Arabic letters as
follows;

• An amount paid to an employee at the time of retirement from—

(i) any pension fund or the Employees Trust Fund established by the Employees Trust
Fund Act, No.46 of 1980, as represents income derived by that fund, for any period
commencing on or after April 1, 1987, from investments made by it (it covers returns
on investment, i.e. interest);
(ii) a provident fund approved by the Commissioner General or a regulated provident
fund. (Here, it covers both the capital plus interest)
181 In para 2.2.5 - Computation of Income Tax on Employment Income – First 4 sub paragraphs
to be removed and replaced with the following;

Individuals’ taxable income (inclusive of employment income) to be taxed at progressive slab

rates as follows;
: Up to 31.12.2019 at 4%, 8%, 12%, 16%, 20% & 24% and
: From 01.01.2020 at 6%, 12% & 18%.

However, the following income to be taxed at 40%;

: Up to 31.12.2019 - Income on the business of betting, gaming, liquor and tobacco, and
: From 01.01.2020 - Income on conducting betting and gaming and manufacture and sale
or import and sale of any liquor or tobacco products.

The capital gains are to be taxed at10%.

 In addition to the personal allowance (Up to 31.12.2019 Rs. 500,000/- per year of assessment
and from 01.01.2020 Rs. 3,000,000/- per year of assessment), only up to 31.12.2019 an
employee was entitled for an employment allowance up to Rs. 700,000/- per year of
assessment against the employment income. Accordingly, up to 31.12.2019 if the
employment income of a year of assessment was less than Rs. 700,000/- he was entitled to
claim the employment allowance only up to the employment income. If the employment
income was equivalent to Rs. 700,000/- or more, the said employee was eligible to claim the
entire Rs. 700,000/-.

The medical benefits are exempted, only if it is a common benefit, while certain retirement
benefits (EPF, Government Pension and incomes added to ETF) continue to be exempted
under third schedule to the Act.

Application of Tax Rates on Individuals having employment income;

For better understanding this could be considered under two periods as follows;
(A) Period from 01.04.2018 to 31.12.2019
(B) Period from 01.01.2020

(A) Period from 01.04.2018 to 31.12.2019 - (Extraordinary Gazette No. 2064/60 of 01st April
2018 under Sec. 83 of the Act)

Just after sub item (A)(ii) and just before paragraph 2.2.6, following new sub item (iii) and
182
item (B) to be included;
(iii) On Retiring Gratuity, uniformly applicable Compensation and on taxable Commuted
Pension & ETF;
Refer para 2.2.11(i).

(B) Period from 01.01.2020

With effect from 01.01.2020 the mandatory WHT (PAYE/APIT) on employment income of
residents and on citizens and the employment allowance of Rs. 700,000 have been
abolished and as a result w.e.f.01.01.2020, the different tax application as under primary
and secondary employment is not applicable.
Accordingly, w.e.f. 01.01.2020 the entire employment income to be taxed as follows;

(i) On Retiring Gratuity, uniformly applicable Compensation and on taxable

Commuted Pension & ETF;
Refer para 2.2.11(ii).

(ii) Other Employment income;

 Description Taxable Income Rate Tax Accu. Tax
Out of taxable Income, 1 st 3,000,000 6% 180,000 180,000
Out of taxable Income, 2 nd 3,000,000 12% 360,000 540,000
Sub Total 6,000,000 540,000 540,000
Bal. Income Tax (>6mn.) 18% xx xx
It is to be noted that if the individual is having any taxable capital gains, the said
investment income to be taxed at a flat rate of 10% while the income on conducting
betting and gaming and manufacture and sale or import and sale of any liquor or
tobacco products, the said business income be taxed at a flat rate of 40%.
182 The para 2.2.6 - Employee’s Responsibilities - to be read as follows;

As per the above gazette notification, an employee having more than one employment shall
furnish to an employer, with a declaration nominating one employment as the employee’s
primary employment. An employee shall have only one primary employment at a time.
This requirement was applicable only for any period prior to 01.01.2020.
183 In para 2.2.8 - The method of valuation of the non-cash/other benefits;
: after the 3rd sub paragraph of that, the following to be added;

However, by amendment Act No. 10 of 2021 the validity of Section 83 is limited up to

31.12.2019 and with a three-month gap, w.e.f. 01.04.2020 it introduced Section 83A which
reads as follows;

83A. (1) An employer shall deduct an Advance Personal Income Tax with effect from April 1,
2020 on any payment which falls under section 5 made to his employee, if such employee –
(a) is a non-resident or non-citizen of Sri Lanka; or
(b) is a resident and citizen of Sri Lanka who gives his consent,
as specified by the Commissioner-General.

Accordingly, pending legislation of the proposed amendments, w.e.f. 01.04.2020 the GC

published WHT (APIT) rates along with the application guidelines in its web portal. However,
though the amended Act is legalized in May 2021, up to date (i.e. September 2021) the
requirement of specifying (Gazetting) is not fulfilled by the CG.

Accordingly, a taxpayer who is having valid grounds to prove his/its values are the fair market
values, there is no legal barrier to apply his/its own market values.

: at the end of 4th sub paragraph of para 2.2.8, following to be added;

Accordingly, a taxpayer who is having valid grounds to prove his/its values as the fair market
values there is no legal barrier to apply his/its own market values.
185 Para 2.2.9 - Retirement Benefits – The content to be changed to read as follows;

This might arise by retirement whether voluntarily or compulsorily, resignation or by dismissal.

Lump sum receipts at retirement includes the following,
• Retiring gratuity
• Commuted pension
• Sum received as compensation for loss of office or employment
• Amount received from Employees’ Trust Fund
• Amount received from Employees’ Provident Fund
Such retirement Benefits are taxing as follows;
• Certain incomes are exempted under Sec. 9 (3rd Schedule) [Refer paragraph 2.2.4 above]
• Certain approved/regulated incomes are taxed at applicable concessionary tax rates after
allowing some tax-free allowances. [Refer paragraph 2.2.5 (B)(i)]
• Other such incomes (non-approved, non-regulated & not applying commonly) are taxed
at the normal rates.
186 At the end of para 2.2.10 - Non-citizens employed in Sri Lanka – following sentence to be
added;
This was applicable only up to 31.12.2019.
186 In para 2.2.11, just after the given table, the following table numbered as (ii) to be
included;

(ii)Period from 01.01.2020

Taxable Terminal Benefits (As mentioned above) Tax Rate
First Rs. 10 million 0%
Next Rs. 10 million 6%
Balance 12%
191 In paragraph 2.3.3.3, item (iii) to be changed to read as follows;

(i) Repairs & Improvements, whether capital or revenue nature, are deductible subject to
following limit; (Sec. 14). W.e.f. 01.04.2021 the upper limit on repairs is removed.
• on buildings up to 5% of WDV at the beginning of the previous year
• on other assets up to 20% of WDV at the beginning of the previous year

191 In paragraph 2.3.3.3, just after item (iv) the following to be newly inserted as item (v) and
renumbered the rest of it;
(v) 200% deduction facility for Marketing and Communication Expenses (Sec. 15A) -
Commencing from 01.04.2021, any person shall be entitled to an additional deduction
when calculating his income from business for a year of assessment, equal to 100% of the
 total amount of marketing and communication expenses deducted, irrespective of
whether those are of capital nature.

Marketing and Communication Expenses means any expense on;

(a) carrying out a market research by such person or any institution in Sri Lanka on his
behalf;
(b) the development or production of marketing, advertising and communication
campaign to the extent that such development or production is carried out in Sri Lanka;
(c) advertising on mainstream media or social media including television, radio, print or
as outdoor advertising;
(d) product launches or campaign activation carried out by such person or by any local
institution on his behalf;

(e) development and printing of point-of-sale material by such person or by any local
institution on his behalf.”

In paragraph 2.3.3.3, following note to be added to the 2nd bullet of the original item (viii);
191 * W.e.f. 01.04.2021 the weightage of 3 times on manufacturing is increased to 4 times.
192 In paragraph 2.3.3.4, following wordings to be added at the end of 2nd paragraph;

In addition to this normal capital allowances on new investments up to 31.03.2025, an

enhanced depreciation is available under Sixth Schedule.

In paragraph 2.3.3.4, the table showing the Capital Allowance to be changed to read as
193 follows;

The capital allowance given in the Second and Forth Schedule to the Act is as follows.

Category of Assets No. of Years

Buildings 20
Motor Vehicles & Furniture 5
Information Technology Hardware 5
Plant, Machinery & Equipment 5
Milking Machines (as amended, w.e.f. 2
01.04.2018)
Intangible Assets;
If the actual useful life is known Within the actual useful life
If the actual useful life is not known 20
196 In paragraph 2.3.4, item (v) to be changed to read as follows;
 (v) Business losses taxing at lower rates could be set off against business or investment
income not taxed at a higher rate. However, w.e.f. 01.04.2021 the brought forward
business losses of a company occurred during a period where a low tax rate was
applicable under SME (i.e. 14%), can be set-off against the subsequent non-SME period
higher tax rated business or investment income.
200 In answer to Question 10, the Remarks under item (xii) Advertising - to be changed to read
as follows;
Sec. 11(1). If for marketing & promotion, even the capital nature cost is allowable w.e.f.
01.04.2021. Sec.15A.

201 In answer to Question 10, the Remarks under item (xxix) Repairs & Improvements - to be
changed to read as follows;

Sec. 11(1), subject to Sec.14 limits. W.e.f. 01.04.2021 no upper limit on repairs.

205 In the last sub para of paragraph 2.4.1, 5th bullet item to be changed to read as follows;

• Business losses taxed at low rates could be set off against business or investment
income not taxed at a higher rate. However, w.e.f. 01.04.2021 the brought forward
business losses of a company occurred during a period where a low tax rate was
applicable under SME (i.e. 14%), can be set-off against the subsequent non-SME period
higher tax rated business or investment income.
208 Just after the item (c) under the heading of Consideration Received for an asset means, the
following sentence to be added;

W.e.f. 01.04.2021, the requirement of a qualified valuer’s valuation to determine the

assessed value and the authority of the tax officers to overrule the said value is introduced.

216 In between the paragraph heading 3.1.2 - Assessable Income of Any Person, and the
description starting with “As explained in the Chapter….” following new sub paragraph to be
inserted;
3.1.2.1 Composition & Computation of Assessable Income

Just after the table given under the that new subheading numbered as 3.1.2.1, to explain the
Assessable Income, the following to be inserted;
The term “assessable income” of a person comprises with tax exempted assessable income
as well as tax liable assessable income and hence, should first compute the assessable income
from each & every source of income separately. Thereafter, in arriving at the “taxable
income” we must total up the entire tax liable assessable incomes and from the total tax
liable assessable income so arrived, deduct the reliefs and qualifying payments.
216, 217, The original paragraph number 3.1.2.1 (Exempt Income of any person) to be changed as
218 & 3.1.2.2.
219
The entire wordings under this renumbered paragraph spread over in page 216 to 219 to be
removed and replaced with the following,

3.1.2.2 Exempt Assessable Income (Incomes which do not form part of taxable assessable
income) of any person

Section 9 read along with Third Schedule to the Act gives a list of incomes exempted from
income tax. As a result, such exempted income does not form part of assessable income of the
applicable person.
The exempt amounts given in Third Schedule to the Act comprising with all sources of income
are as follows;
(a) amounts derived by –
(i) the Government of Sri Lanka, a local authority and any Government department;
(ii) the Central Bank of Sri Lanka, including the Monetary Board;
(iii) any University established under the Universities Act, No. 16 of 1978 or the Buddhist
and Pali University of Sri Lanka Act, No. 74 of 1981;
(iv) any Government assisted private school (other than that incorporated under the
Companies Act, No. 7 of 2007) which is registered with the Ministry of Education and
mandated to follow the Circulars and mandated to follow the Circulars issued by
Government and the Ministry of Education;
(v) any society registered under the Co-operative Societies Law, No. 5 of 1972;
(vi) the Government of a foreign country of foreign territory (to the extent specified
under a diplomatic immunities law or a similar law);
(vii) An international organisation (to the extent specified under a diplomatic immunities
law or a similar law or an agreement between the organisation and the Government
of Sri Lanka, provided that the exemption provided under the agreement shall be
broader than that provided under diplomatic immunities law or a similar law);

(b) capital sums paid to a person as compensation or a gratuity in relation to –

(i) personal injuries suffered by the person; or
(ii) the death of another person;

(c) the pension of a person (where the pension income is paid by the Government of Sri Lanka
or a department of the Government of Sri Lanka);
(d) an amount paid to an employee at the time of retirement out of;
(i) any pension fund or the Employees Trust Fund, as represents income derived by that
fund, for any period commencing on or after April 1, 1987, from investments made by
it;
(ii) a provident fund approved by the Commissioner General & regulated provident funds;
(e) the income of an individual by –
(i) a diplomatic immunities law or a similar law;
(ii) the United Nations and the Specialised Agencies of the United Nations; or
(iii) regulations made under this Act relating to an international organisation, or a law or
Act referred to in subparagraph (i) or (ii);
(f) a gain made by a resident individual from the realisation of an investment asset that does
not exceed Rs. 50,000 and where the total gains made by the resident individual from the
realisation of investment assets in the year of assessment do not exceed Rs. 600,000,
(subject to CGIR’s limitations)
(g) a gain made by a resident individual on the realisation of the individual’s principal place of
residence, provided it has been owned by the individual continuously for 3 years before
being realised and lived in by the individual for at least 2 of those 3 years (calculated on a
daily basis);
(h) gain on realisation of shares quoted in any official list published by the Securities and
Exchange Commission of Sri Lanka;
(hh) Gain made by a person from the realisation of land or building which was sold,
exchanged or transferred to a Real Estate Investment Trust (REIT) listed in the Colombo
Stock Exchange and licensed by the Securities and Exchange Commission of Sri Lanka.
(w.e.f. 01.04.2021).

(i) (i) the interest derived by a charitable institution, where such interest is applied solely for
the purpose of providing care to children, the elderly or the disabled in a home maintained
by such charitable institution;
(ii) any person outside SL (overseas lenders) on any loan granted to any person in Sri
Lanka.
(iii) any person on any foreign currency account deposits in any commercial/specialised
bank with the approval of CBSL on or after 01.01.2020.
(iv) any person from any Special Deposit Account with an authorised dealer in SL under
Foreign Exchange Act either in designated foreign currency or in SL Rs. on or after
08.04.2020.
 (v) any welfare society (Except incorporated companies & partnerships) on or after
01.04.2021.
(vi) any multi-national company on any deposit in foreign currency in any domestic bank,
if such deposit is maintained to cover its import expenditure for that Y/A, on or after
01.04.2021.
(j) any prize received by a person as an award made by the President of the Republic of Sri
Lanka or by the Government in recognition of an invention created, or any research
undertaken, by such person;
(k) (i) any sum received by a person from the President’s Fund or National Defence Fund;
(ii) any sum received by any Public Corporation out of funds voted by the Parliament.
(l) (i) the interest or the discount paid or allowed, to any non-resident person or to any
licensed commercial bank in Sri Lanka, by the issuer of any sovereign bond denominated
in foreign currency, issued on or after October 21, 2008;
(ii) the interest or the discount paid or allowed, to any person on foreign currency Soverin
Bonds.
(ll) A gain from realization of SL international sovereign bonds and received/derived by a
commercial bank/authorized dealer who made an aggregate investment not less than
USD 100 million in such bonds on or after 01.04.2021. [3rd Sch. (ll)]
(lll)Interest or discount accrued or derived on or after 01.04.2021 by any Samurdhi
community-based banks from security/treasury bonds or treasury bills.

(m) any amount derived by a senior citizen from an annuity for life for 10 or more years from
a bank or an insurance company;
(n) any winning from a lottery, which does not exceed Rs. 500,000;
(o) Prior to 01.01.2020, a dividend paid by a resident company to a member out of dividend
received by that resident company or another resident company that was subject to
withholding under section 84; and
(oo) A dividend paid by a resident company [3rd Schedule (oo)] -
(i) To a member out of dividend received, (w.e.f. 01.04.2018) (As per original Act) (To any
member)
(ii) To a non-resident member, (w.e.f. 01.01.2020) (No categorization of the profit)
(iii) BOI entity engaged in any one or more of following businesses in accordance with the
provisions of the Finance Act No. 12 of 2012, (w.e.f. 01.01.2020) (To any member)
• Entrepot trade involving import, minor processing and re-export;
 • Offshore business where goods can be procured from one country or
manufactured in one country and shipped to another country without bringing the
same into Sri Lanka;
• Providing front-end services to clients abroad,
• Headquarters' operations of leading buyers for management of financial supply
chain and billing operations,
• Logistic services including bonded warehouse or multi-country consolidation in Sri
Lanka.

NOTE:-
1. Each of the item (i), (ii) & (iii) given above are independent.

2. A resident person is exempted on dividend income only [if it covered under (i) or
(iii) above]

(p) benefits received or derived by an employee of the government of Sri Lanka from a road
vehicle permit issued to that employee;
(q) the profit & income from any property donated by royal or other grants before 02.03.1815
to any charitable institution.
(r) dividends from and gains received on the realisation of shares in a non-resident company,
by a person having substantial holding of that company;
(rr) Dividends and gains on the realization of units or amounts derived as gains from the
realization of capital assets of a business or investment by a unit holder, from Real Estate
Investment Trust (REIT) listed in the CSE. [3rd Schedule (rr)]

(s) any amount derived by a person from the sale of any gem on which tax has been deducted
under subsection (2) of section 84.
(t) Any amount derived by a non-resident person as a payment for aircraft, software
licenses or for other related services from the Sri Lankan Airlines Limited. (w.e.f.
01.04.2018) [3rd Sch.(t)]

(u) The gain and profit earned or derived by any person from; [3rd Sch.(u)]

(i) the sale of produce from agro farming of such person is exempted for a period of 5
years from 01.04.2019. [If an undertaking’s agro farming produces utilizes to agro
processing or manufacture of any product by itself, the exemption is applicable only
on profit attributable to agro farming produce. As per the amendments to the 1st
Schedule to the Act, 25% of the profit attributable to process/manufacture is
exempted, while the balance is liable @ 14%]
 (Note, though the “agro farming” and “agro processing” terms are defined in Sec. 195,
those definitions are not comprehensive enough & questionable)

“agro-farming”means-
(a) the tillage of the soil and cultivation of land with plants of any description,
cultivation in green house, bee-keeping, rearing of fish, shrimp farming or
animal husbandry, poultry farms, hatchery, veterinary or artificial
insemination services;

(b) the cleaning, sizing, sorting, grading, cutting or chilling of any produce
produced out of any activity referred to in paragraph (a) by any person who is
engaged in any such activity, in preparation of such produce for the market
but excludes the agro or food processing;

“agro-processing”means-
the processing of any locally produced agricultural, fishing, or animal product and
includes an undertaking for the dehydrating, milling, packaging, canning for the
purpose of changing the form, contour or physical appearance of such product in
preparation for the market but excludes an undertaking of deep-sea fishing or
manufacturing;”

(ii) providing information technology and enabled services, as may be prescribed by CG.
(w.e.f. 01.01.2020).

(iii) any service rendered in/outside SL to any person to be utilized outside Sri Lanka
where the payment is received in foreign currency and remitted through a bank to SL
on or after 01.01.2020.

(iv) any foreign source (as defined in Sec. 74), [except for item (iii) above] where such
gains and profits are earned or derived in foreign currency and remitted through a
bank to SL on or after 01.01.2020.

(v) any vocational education programmes of any Vocational Education Institution which
is standardized under Technical and Vocational Education and Training concept (TVET
concept) and regulated by the Tertiary and Vocational Education Commission (as
defined in Sec. 195), who meets following conditions enjoys a tax exemption for a
period of 5 years commencing from 01.04.2021;

(a) if such institution has doubled its student intake of the vocational education
programs for such Y/A (1st year) compared to immediately preceding Y/A; and

(b) if doubled intake in the 1st year maintains for next 4 years.

(vi) any business of export of gold, gems or jewellery or from the business of cutting and
polishing of gems which are brought to Sri Lanka and exported after such cutting and
 polishing, where such gains and profits earned in foreign currency are remitted
through a bank to Sri Lanka, w.e.f. 01.04.2021.

(v) Amounts derived by; [3rd Schedule (v)]

• any non-resident person from laboratory services or standards certification services.
• any religious institution which is registered with the Ministry in charge of the subject
of religious affairs, by way of grants or donations (w.e.f. 01.01.2020).

(w) Gains and profits received or derived from business (other than any gains from capital
assets and liabilities) by a person from following any new undertaking commenced on or
after 01.04. 2021, (not by splitting or re-constructing) subject to the conditions contained
herein; [3rd Sch.(w)]

(i) an undertaking involved in sale of construction materials recycled by itself, is

exempted for a period of 10 years. If such recycled materials used for its construction
service supplies, the market value of such materials to be applied to compute the
exempted gain (Applicable to any person, as it is not specified)

(ii) any business commenced on or after 01.04.2021 by an individual after successful

completion of vocational education (TVET concept) is exempted for a period of 5
years.

(iii) The profit of a boat & ship manufacturing undertaking by a resident person, for 7
years.

(iv) Any solar or wind power (renewable energy) project not less than 100 MW supplying
to national grid, for 7 years. (Applicable to any person, as it is not specified)

(v) An undertaking commenced on or after 01.01.2021 for constructs and installs

communication towers and related appliances and provides required technical
services for such construction or installation by any resident person, for 5 years. [Date
“01.01.2021”, contradicts with the date of “01.04.2021” given in the principal part of
this section (w)]

(vi) An undertaking for letting bonded warehouses or warehouses related to the

offshore business in the Colombo and Hambanthota Ports if such person has invested
on such undertaking on or after 01.04.2021. (Applicable to any person and exempted
forever).

For easy reference & remembering, we will see a summary of the important tax-exempt
assessable incomes.
A Summary of the Tax Exemptions on Businesses explained above; [3rd Schedule]
To Whom Effective Exemption
Industry/Legislation
date period
Realization Gain on land or building sold to REIT Both 01.04.2021 Open
Non-resident’s certain service income from the SL Non-
01.04.2018 Open
Airlines Ltd residents
Agro-farming Both 01.04.2019 5 Years
IT & Enabled Services Both 01.01.2020 Open
Local/foreign services to be utilized outside SL Both 01.01.2020 Open
Vocational Educational Institute expansion Both 01.04.2021 5 Years
(doubling students)
Gold, gems, jewellery exports & gem processing for Both 01.04.2021 Open
export
Non-resident’s laboratory & standards certification Non- 01.01.2020 Open
services residents
Recycling & sale of such recycled construction Both 01.04.2021 10 Years
materials
Businesses commenced after successful vocational Both 01.04.2021 5 Years
education
Boat and ship building Residents 01.04.2021 7 Years
Solar or wind power projects not less than 100 MW Both 01.04.2021 7 Years
Construct communication towers & install Residents 01.01.2021 5 Years
appliances
Letting out bonded warehouses for offshore Both 01.04.2021 Open
businesses
A Summary of the Tax Exemptions on Investment Income explained above; [3rd Schedule]
To Whom Effective Exemption
Industry
(resident/NR) date period
Dividends paid by a resident company, which 3rd Sch. (oo) 3rd Sch. (oo) 3rd Sch.
are covered under item (oo) of 3rd Schedule. Item (oo)
Dividends & disposal gains on shares in a non- Both w.e.f. Open
resident Co. (ℎ𝑎𝑣𝑖𝑛𝑔 ≥ 10% shares/control) 01.04.2018
[3rd Sch. (r)]
Dividends & gains (capital gains & business Both
income) on the realization of units or amounts
derived as gains from the realization of capital
01.04.2021 Open
assets of a business or investment by a unit
holder, from Real Estate Investment Trust
(REIT) listed in the CSE. [3rd Schedule (rr)]

Interest Earned by any charitable institution, Both 01.04.2018 Open

only if it applies for the purpose of providing
care for children, the elderly or disabled in a
home maintained by such institution. [3rd
Schedule (i)]

Interest Earned by any person outside SL Non-resident 01.04.2018 Open

(overseas lenders) on any loan granted to any
person in Sri Lanka
Interest Earned by any person on any foreign Both 01.01.2020 Open
currency deposits in any
commercial/specialised bank with CBSL
approval on or after 01.01.2020
Interest Earned by any person from any Both 08.04.2020 Open
Special Deposit Account under Foreign
Exchange Act in Rs./foreign currency on or
after 08.04.2020
Interest Earned by any welfare society Both 01.04.2021 Open

Interest Earned by any multi-national Both 01.04.2021 Open

company on any FC deposit in bank, to cover
its import expenses for that year of
assessment, on or after 01.04.2021
 Any interest, discount or realization gain of a Non-resident 01.04.2018 Open
non-resident person on any FC Sovereign Bond
Interest or discount paid or allowed to any Both 01.04.2018 Open
person on any FC Sovereign Bond & SL
Development Bonds
Realization Gains of SL international sovereign Both Banks 01.04.2021 Open
bonds by a commercial bank/authorized
dealer making aggregate investment ≥USD
100 mn on or after 01.04.2021.
Interest or discount earned on or after Both 01.04.2021 Open
01.04.2021 by any Samurdhi community-
based banks from security/treasury bonds or
treasury bills.

219 Just after the heading 3.1.3.1. Deductions from Assessable Income – Qualifying Payments
(QP) & Relief - following sub heading to be inserted;

(A) (A) QP & RELIEF UP TO 31.12.2019 (Sec. 52 read along with 5th Schedule)

219 At the bottom of this page, just after the table, following to be inserted;

(A) QP & RELIEF FROM 01.01.2020 (Sec. 52 read along with 5th Schedule)

Reliefs (5th Schedule)

(i) Personal relief of Rs. 3 million w.e.f. 01.01.2020. This personal relief is not entitled to
deduct against the capital gains (gains on realization of investment assets).
(ii) 25% Repair Allowance on Rent income only for individuals w.e.f. 01.04.2018.
(iii) A resident individual is entitled to enjoy a relief on following expenses (incurred on or
after 01.01.2020) up to Rs. 1.2 million per Y/A;
• Health expenditure including medical insurance,
• Educational expenditure incurred locally (own education or of children’s education),
• Interest on housing loans,
• Contribution to a local pension scheme,
• Expenditure on purchase of CSE listed equity/security or Treasury Bills/Bonds.
(iv) Any resident individual who has acquired solar panels to fix on his premises and
connected to the national grid is entitled to claim a relief up to Rs. 600,000 for each Y/A
on account of;
• the total expenditure on such solar panels or
• the amounts paid to a bank in respect of any loan obtained to acquire such solar
panels.
 (As per the wordings of the law it covers only the panels & not the entire solar
system and out of lenders only the banks? Presume that these are drafting errors)

Qualifying Payments (5th Schedule)

(i) Donations by any person to approved charities [5th Sch. item(1)(a)] (w.e.f. 01.04.2018),
(ii) Donations by any person to Government/Governmental Institutions [5th Sch. item(1)(b)]
(w.e.f. 01.04.2018),
(iii) Any profit sum (changed w.e.f. 01.04.2019) paid to Consolidated Fund (w.e.f.
01.04.2019) or to the President Fund (w.e.f. 01.04.2018) by a public corporation [5th Sch.
item(1)(c)],

(iv) Contribution made by a resident individual (in money or otherwise) to establish a shop
for a female individual who is from a Samurdhi beneficiary family as recommended and
confirmed by the Department of Samurdhi Development. [5th Sch. item (1)(d)], (w.e.f.
01.04.2021)

(v) Expenditure incurred by any financial institution by way of cost of acquisition or merger
of any other financial institution and as confirmed by the CBSL can be claimed as a
qualifying payment over a period of 3 years of assessment (1/3rd per Y/A). Any balance
unclaimed amount due to the limitation of AI could be carried forward and claim
immediately after 3 years. [5th Sch. item (1)(e)] (w.e.f. 01.04.2021)

(vi) Expenditure incurred on or after 01.04.2021, by any person;

• in the production of a film at a cost of (including promotional expenditure of such
film) not less than Rs. 5 million,
• in the construction and equipping of a new cinema at a cost of not exceeding Rs. 25
million,
• in the upgrading of a cinema at a cost of not exceeding Rs. 10 million,

Provided that this deduction shall be restricted to 1/3rd of the taxable income of the Y/A,
with the C/F & claiming facility of the non-deducted amount in the next succeeding year
and so on, subject to 1/3rd restriction. [5th Sch. item (1)(f)] (w.e.f. 01.04.2021).
220 & The entire paragraph 3.1.4.1 - Rates of Income Tax - to be removed and replaced with the
following;
221
3.1.4.1 Rates of Income Tax
The First Schedule to the Inland Revenue Act gives the income tax rates including withholding
tax rates applicable to individuals and entities (companies, Partnerships and trusts).
(i) Applicable tax rates on an individual (Details are given in para 3.2.3.1);

(A) Period from 01.04.2018 to 31.12.2019

• Capital gains (gains from realization of an investment asset) at 10%,
• Concessionary & maximum tax rates of 5% and 10% on retirement benefits
• Standard slab tax rates varying from 4% to 24% on all other taxable income, and
• Higher fixed Tax Rate (liquor, tobacco & gambling) of 40%.

(B) Period from 01.01.2020 Onwards

• Capital gains (gains from realization of an investment asset) at 10%,
• Concessionary & maximum tax rates of 5% and 10% on retirement benefits
• Standard slab tax rates varying from 6% to 18% on all other taxable income, and
• Higher fixed Tax Rate (liquor, tobacco & gambling) of 40%.

It is to be noted that the concessionary tax rate of 14% given on certain identified special
business incomes of a company (SME, exports, agriculture, education, tourism and IT) is not
available for individuals and trusts.

(ii) Applicable tax rates on Companies;

• Capital gains (gains from realization of an investment asset) at 10%,

• Concessionary tax rate of 14% on taxable income comprised with certain identified
business income,
• Standard tax rate of 28% (from 01.01.2020 @ 24%) and
• The higher tax rate of 40% on specially identified businesses (liquor, tobacco and
gambling). The detail aspects of the tax rates on companies are given in the paragraph
3.3.4.1 below.

(iii) Applicable tax rates on Partnerships;

• Capital gains (gains from realization of an investment asset) at 10%
• Balance Income – up to 31.12.2019 was not liable at partnership level.

However, up to 31.12.2019 the allocation of the partnership income (not containing capital
gains) among the partners was subject to withholding tax at the rate of 8% where the credit
was available to the individual partners.
However, w.e.f. 01.01.2020 the withholding tax on partnerships allocations have been abolished
and introduced the income tax on partnerships @ 6%.

The detail aspects are given in the paragraph 3.4.4 below.

Applicable withholding tax (WHT) rates;

Section 83, 84 and 85 read along with paragraph 10 of First Schedule and the Government
Gazettes thereon, covers the WHT.
 • On Employment Income up to 31.12.2019 – (Section 83 and Government Gazette No.
2064/60)
4%, 8%, 12%, 16%, 20% and 24% (as per PAYE table).

• On Investment Returns up to 31.12.2019 – (Section 84 and para 10 of First Schedule)

2.5%, 5%, 8%, 10% and 14%

• On Service fee & contract payments up to 31.12.2019 – (Section 85 and Government

Gazette No. 2064/51) 2%, 8%, 10% and 14%

The final WHT is listed in Section 88 of the Act. Any WHT not identified as the final WHT is to
be considered as non-final WHT.
As per Sec. 88 of the Act, the following shall be the final withholding payments:
(However, most of these WHTs were abolished w.e.f. 01.01.2020).
(a) dividends paid by a resident company to a resident person;
(b) interest paid to or treated as being derived by–
(i) a resident individual (other than such amount of interest paid to a senior citizen falling
within the relief threshold in paragraph 2 (d) of the Fifth Schedule to this Act);
(ii) a charitable institution;
(c) amounts paid as winnings from a lottery, reward, betting or gambling, other than amounts
received in conducting a business consisting of betting and gaming; and
(d) payments made to non-resident persons that are subject to withholding under this
Division, or would be so subject if Section 84 (1)(b) (source in Sri Lanka) and Section
85(3)(b) (non-business payments made by individuals) were disregarded, other than
payments derived through a Sri Lankan permanent establishment.
223 The first two sub paragraphs under the 3.2.3.1 - Rates of income tax of an individual and
application of those – to be removed and replaced with the following;

3.2.3.1 Rates of income tax of an individual and application of those

Depending on the nature of income, the applicable tax rate/s of an individual varies and
hence we may categorise the taxable income into four parts and apply the applicable tax
rate/s as follows;
• Capital Gains 10%
• Concessionary Tax Rates on Retiring Benefits 5% & 10% (Max.)
• Higher Tax Rate (liquor, tobacco & gambling) 40% (Fixed)
• Standard Tax Rates as follows;
 From 01.04.2019 to 31.12.2019 4%, 8%, 12%, 16%, 20% & 24%
From 01.01.2020 onwards 6%, 12% & 18%
224 The table given under (iii) Standard Tax Rates of 4% to 24% - to be removed and replaced
with the following two tables;

(iii)Standard Tax Rates

(a) From 01.04.2018 to 31.12.2019

Taxable Tax Rate Tax Amount Accumulated
Income (Rs.) Tax (Rs.)
(Rs.)
1st 600,000 4% 24,000 24,000
2 nd 600,000 8% 48,000 72,000
3 rd 600,000 12% 72,000 144,000
4th 600,000 16% 96,000 240,000
5 th 600,000 20% 120,000 360,000
Sub Total 3,000,000 360,000 360,000
Balance Taxable Income Balance 24%

(b) From 01.01.2020 onwards

Taxable Tax Rate Tax Amount Accumulated
Income (Rs.) (Rs.) Tax (Rs.)
1 st 3,000,000 6% 180,000 180,000
2nd 3,000,000 12% 360,000 540,000

Sub Total 6,000,000 540,000 540,000

Balance Taxable Income Balance 18% xxx xxxx
As stated in paragraph 1.1.3.1 above, the concessionary tax rate of 14% given on certain
identified special business incomes of a company (SME, exports, agriculture, education, tourism
and IT) is not available for individuals. As a result, an individual’s such incomes are taxed on slab
rates go up to 24% or 18% as applicable.
225 The entire paragraph (iv) Higher Tax Rate of 40% - to be removed and replaced with the
following;

The higher tax rate of 40% applies on the following income;

• From 01.04.2018 to 31.12.2019 on liquor, tobacco and betting & gaming businesses.
• From 01.01.2020 onwards on profit on conducting betting & gaming and on manufacture
& sale or import & sale of any liquor or tobacco products.

On such incomes an individual is not entitled to apply any other lower tax rates.

In addition to the above, the applicable rate/s of WHT on incomes subject to WHT is applicable,
where the payee is supposed to withhold.

227 & The entire description under the heading of 3.3.4.1 Computation of Income Tax – excluding
228 the definitions, to be removed and replaced with the following;
3.3.4.1 Computation of Income Tax
For better clarity we will present the applicable tax rates in table form as follows;
i. Income Tax Rates of Companies for Y/A 2018/19 & 2019/20 (Up to 31.12.2019)
10% On Capital Gains (Gain on realisation of investment Assets)
14% On SMEs, Exporting goods & services*, IT services*, Agriculture*, Education*,
Tourism*. [*the Companies predominantly (minimum 80%) engaged in such
businesses are to apply 14% on entire company profit excluding Capital Gains
& 40% applicable incomes]
28% Standard rate
40% Betting, Gaming, Liquor, Tobacco income (Only the Business Income)

Receiving of 80% or more gross income (turnover) from the applicable concessionary
rated business is considered as predominantly engaged in that business. Upon meeting
the 80% requirement the company enjoys the 14% concessionary tax rate on the entire
taxable income excluding the income from liquor, tobacco and gambling. No sooner a
company fails to meet the said 80%, it loses the concessionary tax rate on the entire
taxable income.

Under any circumstance the income from liquor, tobacco and gambling is taxed at 40%.

As per the definition given in the Act, exports enjoying concessionary tax rate of 14%
could be summarised as follows;
Person Coverage
Direct exporters Export of any goods or services.
Indirect exporter - Supply of exports related services and non-traditional goods.
However, the requirement of “predominantly engaging” is removed w.e.f. 01.01.2020
and introduced the taxing of each nature of activity separately at the applicable rate/s
as given below.
 ii. Income Tax Rates for Companies from Y/A 2020/21 (From 01.01.2020)
14% SME as defined in Sec. 195.*1 (Applicable only on the Business Income)
14% Business of sale of goods or merchandise including export of goods, where the
proceeds in foreign currency is remitted through a bank to SL*1.
14% Specified Undertakings as defined in Sec. 195 (As detailed below)*1
14% Education, Promotion of Tourism, Constriction Services, Agro-processing and
Healthcare,*1
14% Dividends received from resident company
14% Supply of health protective equipment and similar products by BOI export
company to the Ministry of Health, SL Army, SL Navy, SL Air force, SL Police &
COVID Centre.*1
14% Gains and profits from consideration received in respect of gems and
jewellery.
14% Y/A 2022/23, 2023/24 & 2024/25 of a company which lists shares with CSE
during 01.01.2021 to 31.12.2021. (It overrules all other provisions of this or
any other Acts charging higher IT rate/s).*1
14% Gain and profit from supply of electricity generated by using renewable
energy resources to national grid.
18% Manufacturing (not covered under the five types of business marked with*1
above).
40% Conducting Betting & Gaming (Only the Business Income)
40% 1Manufacture & sale or 2import & sale of any Liquor or Tobacco product.
(w.e.f. 01.04.2019) (Only the Business Income) (non-manufacturing/non-
import trading are not subject to 40%)
10% Capital Gains (Since 01.04.2018 @ 10%)
24% On any other taxable income of a company.
In addition to the above, the applicable rate/s of WHT on incomes subject to WHT, where the
payee is supposed to withhold is also applicable. However, most of the WHT have been
abolished w.e.f. 31.12.2019.
229 The last item of this page (iii) Standard Tax Rates of 28% - be removed in full.
230 The first item of this page (iv) Higher Tax Rate of 40% - to be removed in full.
230 The first four paragraphs of the heading 3.4 Partnerships - Assessable Income, Taxable
Income and Income Tax - to be removed and replaced with the following;
3.4 Partnerships - Assessable Income, Taxable Income and Income Tax
In order to tax a partnership, it is important to understand what a partnership means for
income tax purposes.
Section 195 of the Act defines a “partnership” as follows;
 Partnership means an association of two or more individuals or corporations carrying on
business jointly for the purpose of making profit, irrespective of whether the association is
recorded in writing.
As stated in paragraph 1 above, any person who has taxable income for the year or a person
who receives a final withholding payment (a payment subjected to a final WHT) during the
year is liable to pay income tax (Section 02).
(a) Income Tax liability up to 31.12.2019
However, as per Section 53 of the Act, except for on capital gains, prior to 01.01.2020 a
partnership shall not be liable to pay income tax with respect to its taxable income and
shall not be entitled to any tax credit with respect to that income but shall be liable to pay
income tax with respect to withholding payments. However, partnerships shall be liable
to pay income tax on its taxable income comprised of gains on realization of investment
assets (capital gains).
Further, allocation of the share of partnership income was subject to WHT @ 8% (Up to
31.12.2019) which was abolished the WHT on allocation of partnership profits w.e.f.
01.01.2020.

(b) Income Tax liability on or after 01.01.2020

W.e.f. from 01.01.2020, the WHT on allocation of the share of partnership income was
abolished and the partnership’s taxable income made liable to tax as follows;
Taxable Income What part of Taxable Income Tax Rate
Gains on realization of Gains on realization of investment 10%
investment assets if any assets (No exempted threshold)
Balance taxable income Not exceeding (up to) Rs. 1,000,000 0%
- Do - Exceeding Rs. 1,000,000 (Only on excess) 6%
231 The entire paragraph of 3.4.1 Chargeability of Income Tax and Computation of Income Tax -
be removed and replaced with the following;

3.4.1 Chargeability of Income Tax and Computation of Income Tax

As stated above, prior to 01.01.2020 partnerships were liable to pay income tax only on their
capital gains. Capital gains/capital losses shall not be allocated to the partners for their income
tax purposes.
Up to 31.12.2019:
Partnership’s non-capital gain incomes and non-capital losses along with any tax credits (WHT
and ESC) shall be allocated to the partners for them to consider for their income taxes.
From 01.01.2020:
As mentioned above w.e.f. 01.01.2020, partnerships 8% WHT on allocation of the share of
partnership income is abolished and introduced 6% income tax on its taxable non-capital gain
income while the capital gains continued to be liable to income tax at the rate of 10%.
232 The entire content of para 3.4.3 Taxable Income of a Partnership - be removed and replaced
with the following;

3.4.3 Taxable Income of a Partnership -

As per the Sec. 53(1) & (2) of the Act, prior to 01.01.2020 except for on capital gains, a
partnership shall not be liable to pay income tax with respect to its taxable income.
Taxable Income of a Partnership = Assessable Income - qualifying payments

233 The first sub paragraph of 3.4.4.1 Withholding Tax on partners’ share of income & taxing of
partners – to be removed and replaced with following;

As mentioned above, up to 31.12.2019, the precedent partner or in the absence of such partner
in Sri Lanka, an agent of the partnership in Sri Lanka, was to be withhold tax in accordance with
Section 84 (WHT @ 8% as in paragraph 10 of the First Schedule to this Act) on each partner’s
share of any partnership income, excluding the share of any partnership income that includes
a capital gain.
236 The entire table under (ii) Standard Tax Rates – to be removed and replaced with the
following;

Trust of an incapacitated individual (not being a minor) - Individual’s slab rates

• From 01.04.2018 to 31.12.2019 = 4%, 8%, 12%, 16%, 20%, 24%
• From 01.01.2020 onwards = 6%, 12%, 18%
Unit trust or mutual fund that does not conduct an eligible investment / business (A trust
which is treating as a company and apply company tax rate/s).
• From 01.04.2018 to 31.12.2019 = 14%, 28%, 40%, as applicable
• From 01.01.2020 onwards = 14%, 18%, 24%, 40%, as applicable
Any other case (When treated as a Trust, under First Schedule)
• From 01.04.2018 to 31.12.2019 = 24%
• From 01.01.2020 onwards = 18%
238 The last paragraph under the heading of 4.1 Introduction of Direct & Indirect Taxes – (first
sub paragraph of page 236) to be removed.
238 Following to be added to the end of the description under the heading of Nation Building
Tax;
However, the NBT is abolished in full with effect from 01st December 2019.
238 The following to be added just after the given table in this page;

*As per the amendment brought into the section 6 through the Value Added Tax
(Amendment) Act No. 19 of 2019 subject to the counter approval of the Parliament, the
Minister, after getting the Cabinet approval, can publish the manner by which the value of
goods specified in the regulation made.
244 Two tables given in this page to be removed and replaced with the following;
 (i) Retail and wholesale activities
With effect from 01st January 2013 the retail and wholesale activities made liable for
VAT subject to following minimum supply values.

Period Minimum Supply Value

Per 3 or 1 month period
From 01.01.2013 to 31.12.2013 Rs. 500 million
From 01.01.2014 to 31.12.2014 Rs. 250 million
From 01.01.2015 to 01.05.2016 Rs. 100 million
From 02.05.2016 to 10.07.2016 Rs. 250 million
From 11.07.2016 to 31.10.2016 Rs. 100 million
From 01.11.2016 to 31.12.2019 Rs. 12.5 million
From 01.01.2020 Rs. 75 million (Rs. 300mn per year)

(ii) Any other taxable supplies, other than imports and retail and wholesale activities
Any period
01.01.2015 to 01.04.2016 to From 01.01.2020
31.03.2016 31.12.2019
Per 1 or 3 months period Rs. 3,750,000 Rs. 3,000,000 Rs. 75,000,000
Per 12 months period Rs. 15,000,000 Rs. 12,000,000 Rs. 300,000,000

246 The entire paragraph 4.3.1.1.5 – Excluded Supply (Section 3) – to be removed and
replaced with the following;
4.3.1.1.5 Excluded Supply (Section 3)
Basically, the wholesale or retail supply of goods by traders (not been manufacturers,
importers etc.) whose supply value for any 3 months period in any calendar year for any
period prior to 01.01.2020 not less than Rs. 12.5 million are excluded.
247 The entire paragraph 4.3.1.2.2 – Rate of Tax – to be removed and replaced with the
following;

4.3.1.2.2 Rates of Tax

In computation, out of the following three rates, the correct rate/s of tax is to be identified.
(Section 2, 7 & 22).
(i) Zero Rate – This is applicable on export goods & on providing of services to be consumed
in abroad.
(ii) Standard Rate – On all other liable supplies @ 8% from 01.01.2020 (15% from
01.11.2016 to 31.12.2019).
(iii) Special rates based on the piece or weight of product (Eg. Garments per item Rs.75/- and
 other Rs.75 per Kg)

248 The wordings of “Total output tax Rs. 3,000,000 @ 15%” in the Example to be read as follows;

“Total output tax Rs. 3,000,000 @ 15% (If prior to 01.01.2020)”

249 Entire paragraph 4.3.1.2.4 Balance Tax (VAT) Payable - to be removed and replaced with
the following;
4.3.1.2.4 Balance Tax (VAT) Payable
Even, those who are registered for filing of quarterly returns are required to make
payments as follows;
Manufacturers –
On or before 20th of the month following to the end of the quoter while and any required
adjustment for the quarter could be made in the last month’s (3rd monthly payment for the
quarter) payment and submit the return on quarterly basis.
Non -manufacturers –
They have to pay on half a month basis as follows;
Any period during 01.01.2013 to 01.10.2019;
1st to 15th of the month to be paid by - 30th of the month
16th to end of the month by - 15th of the immediate subsequent month.

Any period from 01.11.2019;

For the 1st month of the period to be paid by - 20th of the 2nd month
For the 2nd month of the period to be paid by - 20th of the 3rd month
Balance tax for the period to be paid by - 20th of the month after the quarter
Delay of payment is subject to penalties starting with 10% immediately plus 2% for every
delayed month or part thereof after lapse of 1month after due date. Maximum penalty 100%.
252 Entire paragraph 5.1.1 Tax Period (Sec. 20) - to be removed and replaced with the following;

5.1.1 Tax Period (Sec. 20)

The income tax period (year of assessment) is from 1st April of a year to 31st March of the
immediately succeeding year.
On valid grounds, a trust or a company may apply to the Commissioner General of Inland
Revenue (CGIR) to change its period of 12 months covered with the year of assessment (Y/A)
whereas an individual and a partnership is not permitted to apply to the CGIR to change its
period of 12 months covered with the year of assessment.
252 Following sentence to be added to the end of the description of (i) Withholding Tax – under
paragraph 5.1.3;
Most of the WHT have been abolished w.e.f. 01.01.2020.
255 In this page line 8 to 10 {i.e. Where the return or part of a return was prepared for reward
by some other person, including by an approved accountant, other than a full-time
employee of the taxpayer, that other person shall also sign the return [Sec. 126(5)]} be
removed and replaced with the following;

(i) Period up to 31.03.2021 –

Where the return or part of a return was prepared for reward by some other person,
including by an approved accountant, other than a full-time employee of the taxpayer, that
other person shall also sign the return [Sec. 126(5)].

This section was applicable only if the service provider has given the service for a reward.
Generally, the professionals provide such services for a fee and not for a reward and hence it
was not applicable to such professionals. Further, the way this section is amended by the
Inland Revenue (Amendment) Act No. 10 of 2021, no reference for the period up to
31.03.2021 is given, which create a doubt whether the above requirement is not applicable
even for the period from 01.04.2018 to 31.03.2021.

(ii) Period from 01.04.2021 (As per the Inland Revenue (Amendment) Act No. 10 of 2021)
W.e.f. 01.04.2021, where the return or part of a return was prepared for a payment by any
person, including by an approved accountant, such person shall certify separately specifying
the extent to which he was involved in the preparation of such return and specify the
documents examined by him and the information relied upon by him. Such certification shall
be submitted along with the return and the said certification shall be deemed to be part and
parcel of the said return. [Sec. 126(5)].

As per the general practice of undertaking of tax compliance services, the tax consultants
including approved accountants do not examine the taxpayer’s documents and they do
compute tax & fill the client’s tax returns as per the information & documents provided for
by the taxpayer and in such a case, need to state that fact in the certificate (i.e. As per the
agreed upon assignment with the taxpayer, I/we have assisted in preparing the tax return of
………. for the year of assessment …… by relying on the information and documents provided
by the taxpayer and we have not verified the accuracy or completeness of such documents
and information).

The End