IRD has issued revised guidance on calculating quarterly income tax instalments from the Year of Assessment 2026/2027, following amendments to the Inland Revenue Act. The circular sets out the standard and alternative methods taxpayers must use to determine their instalment liabilities.
The Inland Revenue Department (IRD) of Sri Lanka has published a revised circular setting out how taxpayers should calculate quarterly income tax instalments following changes to the Inland Revenue Act, No. 24 of 2017.
Circular SEC/2026/E/06 was originally issued on 3 August 2026 and revised on 6 August 2026.
The changes follow the Inland Revenue (Amendment) Act No. 11 of 2026, which was certified on 3 June 2026. The amendment withdrew the requirement for taxpayers to submit a Statement of Estimated Tax (SET), with quarterly tax instalments instead generally calculated using taxable income from the immediately preceding year.
The revised rules apply from the Year of Assessment 2026/2027. Taxpayers with no taxable income in the previous year, or those expecting significantly lower taxable income in the current year, may determine their instalments using alternative methods specified by the Commissioner-General.
Quarterly payment deadlines
The circular sets the deadlines for quarterly instalments at 15 August, 15 November and 15 February for the first three instalments of the relevant Year of Assessment. The fourth instalment is due by 15 May of the following Year of Assessment.
The amount payable is calculated using the formula (A – C) / B. Under the formula, A represents the gross income tax payable before tax credits for the immediately preceding Year of Assessment, B is the number of instalments remaining, including the current instalment, and C represents tax already paid during the current Year of Assessment.
C includes previous instalment payments as well as Withholding Tax (WHT) and Advance Income Tax (AIT) credits already withheld or expected to be withheld.
Standard and alternative methods
The circular provides three methods for determining the amount of tax payable.
Method 1, or the Standard Basis, applies by default to taxpayers who had taxable income in the preceding Year of Assessment. Under this method, A is the gross tax payable based on the preceding year’s taxable income. Taxpayers using the Standard Basis do not need to file additional documentation, although underpayments and late payments may result in interest and penalties.
Method 2 provides alternative bases for taxpayers who had no taxable income in the preceding year or reasonably expect their current-year income to be lower. Where no taxable income is expected in either year, A is treated as zero and no instalment is due, although a statement using Form No. SEC/2026/SA/01 must be submitted.
Where a taxpayer had no preceding taxable income but expects current-year income, A must be estimated using the applicable tax rules while disregarding relevant losses or tax exemptions from the preceding year where they no longer apply. The same form must be submitted.
Taxpayers who had taxable income in the previous year but expect a significant reduction in current-year income can recalculate A by excluding gains or profits from business or investment activities that are not expected to arise. Supporting calculations and Form No. SEC/2026/SA/01 are required.
Newly registered taxpayers
Newly registered taxpayers without a tax computation for the previous Year of Assessment must estimate their taxable income for the current year. This approach applies for one Year of Assessment and requires submission of Form No. SEC/2026/SA/02.
Method 3 applies where unusual or practical circumstances prevent a taxpayer from calculating A under the relevant alternative bases. Such taxpayers must submit a written request to the Commissioner of the Tax Policy and Legislation Unit explaining the restrictions and seeking a reasonable alternative method.
Credit schedules and revisions
The circular also sets requirements for tax credit schedules. These must be submitted to the Central Document Management Unit (CDMU), Regional, or Metro Office by the last day of the month in which the relevant instalment is due.
Individuals whose income is solely employment income subject to Advance Personal Income Tax (APIT) are exempt from quarterly instalments and credit schedules. Similar relief applies where employment income is combined with rent or interest income subject to AIT and the APIT and AIT withheld is sufficient to cover the estimated liability.
Taxpayers may also claim eligible foreign tax credits under Section 80 of the Inland Revenue Act, provided the relevant tax has been paid or is reasonably expected to be paid during the year.
Taxpayers using Method 1 can request a mid-year revision where projected current-year taxable income is lower than the previous year’s. Requests must be made by 31 October, 31 January or 30 April, depending on the relevant quarterly instalment.
Background
The revised guidance follows the previous coverage of the Inland Revenue (Amendment) Act No. 11 of 2026, which introduced changes to the basis for calculating quarterly income tax instalments and removed the requirement to submit a Statement of Estimated Tax (SET) from the Year of Assessment 2026/2027.
