INLAND REVENUE ACT

Arrangement of Sections

1. Short title.

CHAPTER I

IMPOSITION OF INCOME TAX

2. Imposition of income tax.

CHAPTER II

INCOME CHARGEABLE WITH TAX

3. Income chargeable with Tax.

4. Profits from employment.

5. Net annual value of land and improvements thereon or of any place of residence.

6. Profits or income arising from rents of land and improvements thereon.

CHAPTER III

EXEMPTIONS FROM INCOME TAX

7. Exemptions from income tax of certain persons (other than individuals) on the whole or any part of their profits and income.

8. Exemption from income tax of certain profits and income of certain officers and employees.

9. Exemption from income tax of certain interest received.

10. Exemption from income tax of certain dividends.

11. Exemption from income tax of certain profits and income from lands and improvements thereon.

12. Exemption from income tax of certain subsidies.

13. Miscellaneous exemptions from income tax.

14. Exemption of certain profits and income of any resident guest.

15. Exemptions of profits and income derived from outside Sri Lanka.

16. Exemption from income tax of profits and income from agricultural undertaking.

16A. Exemption from income tax of the profits and income of any undertaking for fishing.

16B. Exemption from income tax of the profits and income of any undertaking for producing agricultural seeds or planting materials.

16C. Exemption from income tax of the profits and income of any new undertaking investing not less than fifty million rupees.

16D. Exemption for five years, of profits and income of strategic import replacement undertakings engaged in the manufacture of specified products.

16E. Exemption of profits and income from cultivation of any renewable energy crops and transactions connected with manufacturing, distribution and marketing of organic fertilizer.

17. Exemption from income tax of the profits and income of any company from any specified undertaking.

17A. Exemption from income tax of the profits and income from any new undertaking engaged in any specified activities.

18. Exemption from income tax of certain undertakings for infrastructure development.

19. Exemption from income tax of small scale infrastructure undertakings.

20. Exemption of the profit and income of any new industrial undertaking.

21. Exemption of profits and income of any relocated undertaking.

21A. Exemption of profits and income of undertakings relocated from certain districts.

22. Exemption from income tax of any company engaged in research and development.

23. Exemption from income tax of any venture capital company.

24. Exemption from income tax of any person engaged in the business of providing Manor Houses or Thematic Bungalows to tourists.

24A. Exemption from income tax of the profits and income from any new or upgraded cinema.

24B. Exemption from income tax of the profits and income from the operation of any reopened abandoned factory.

24C. Exemption from income tax of the profits and income of any new undertakings located within the Eastern Province.

24D. Exemption of the profits and income of any new undertaking located in any lagging region.

CHAPTER IV

ASCERTAINMENT OF PROFITS OR INCOME

25. Deductions allowed in ascertaining profits and income.

26. Deductions not allowed in ascertaining profits and income.

27. Deduction of head office expenses incurred by any non-resident company.

CHAPTER V

ASCERTAINMENT OF TOTAL STATUTORY INCOME

28. Basis for computing statutory income.

29. Apportionment of profits.

30. Total statutory income.

31. Aggregation of the total statutory income of a child with that of his parent.

CHAPTER VI

ASCERTAINMENT OF ASSESSABLE INCOME

32. Deductions from total statutory income in arriving at assessable income.

CHAPTER VII

ASCERTAINMENT OF TAXABLE INCOME

33. Taxable Income.

34. An allowance in respect of qualifying payments.

CHAPTER VIII

RATES OF INCOME TAX ON PERSONS OTHER THAN COMPANIES

35. Rates of income tax on persons other than companies.

CHAPTER IX

SPECIAL PROVISIONS RELATING TO THE TAXATION OF CERTAIN PROFITS
AND OF DIVIDENDS OUT OF SUCH PROFITS

36. Special provision relating to taxation of interest on compensation payable in respect of property vested in the Government, the Land Reform Commission or a public corporation or a local authority.

37. Deduction of income tax from interest payable on certain deposit accounts.

38. Rates of income tax on the gross interest on loans granted by a company, partnership or other body of persons outside Sri Lanka.

39. The rate of income tax on royalty payable to any company partnership or other body of persons outside Sri Lanka.

40. The rate of income tax on profits from employment, for a specified period of a non-citizen employed in Sri Lanka.

40A. Rates of income tax on the profits from employment of any pilot.

40B. Rate of tax on qualified profits of qualified individuals.

40C. Rates of income tax on the profits from employment of professionals.

41. Rate of income tax on profits and income of any foreign currency banking unit arising from any off-shore foreign currency transaction.

42. Rate of income tax on profits and income arising in Sri Lanka to the consignor or consignee from certain exports.

43. Rate of income tax on profits and income arising from certain undertaking approved by Minister.

44. Rate of income tax on sale of any share or a warrant.

45. Rates of income tax on profits from certain undertakings carried on by a person other than a company.

46. Rate of income tax on profits from certain undertakings carried on by a company.

46A. Rate of income tax on profits from poultry farming.

47. Rate of income tax applicable to specialized housing banks.

48. Rates of income tax for periods after the expiry of the tax exemption period.

48A. Rate of income tax after the expiry of tax exemption under section 16.

48B. Rate of income tax applicable to strategic import replacement undertaking after the expiry of the period of exemption.

48C. Rate of income tax applicable to BOI registered undertakings after the expiry of the period of tax exemption.

48D. Extension of the period specified for the fulfilment of investment criteria by any company entered into an agreement with the Board of Investment of Sri Lanka under section 16D or section 17A.

49. Rate of income tax on dividends paid out of profits taxed in accordance with section 46.

50. Rate of income tax on qualified export profits and income of person not being a company, who commenced to carry on any specified undertaking.

51. Rate of income tax on qualified export profits and income of a company which commenced to carry on any specified undertaking.

52. Rate of income tax on qualified export profits and income of a company which carries on any specified undertaking.

53. Rate of income tax on dividends out of exports profits and income.

54. Rate of income tax on certain dividends.

55. Rate of income tax on dividend received from outside Sri Lanka.

56. Rate of income tax on deemed exports of any person or partnership.

56A. Rate of income tax on the profits and income from the sale of goods by an export oriented company.

56B. Rate of income tax on the profits and income from the supply of goods or services to foreign ships.

56C. Rate of income tax on the profits and income from the sale of products manufactured in Sri Lanka for payment in foreign currency.

56D. Rate of income tax on the profits and income from the sale of locally manufactured goods in local market by export oriented companies.

57. Rate of income tax on profits and income from services rendered outside Sri Lanka by any resident company or partnership.

58. Rate of tax on profits and income from the supply of any services to any exporter.

59. Rate of tax on profits from transshipment agency fees.

59A. Rate of income tax on the profits from the export or supply to an exporter of certain product having domestic value addition over sixty five per centum.

59B. Rate of income tax applicable to the profits and income of any person from any undertaking with annual turnover not exceeding certain amount.

59C. Tax rate applicable to strategic import replacement undertakings.

59D. Rate of income tax applicable to companies listing its shares in the Colombo Stock Exchange and issuing its shares to the general public.

59E. Rate of income tax on the profits and income from operating any alternative power generation project.

59F. Rate of income tax on the profits and income from the provision of professional services.

59G. Rate of income tax applicable to the profits and income earned by any bank on loans granted to professionals for construction purposes.

59H. Income tax payable by ship operators, ship builders or any agent of a foreign ship.

59I. Rate of income tax applicable to profits and income of any manufacturing company which carries on an expansion of such business to any Province other than the Western Province.

59J. Rate of income tax applicable to the profits and income of a new company engaged in any manufacturing business.

59K. Income tax payable by local manufacturer who is in the business since 1970.

59L. Income tax payable by local entrepreneurs engaged in intercropping activities or vegetable and food processing activities.

59M. Income tax payable by a person on an undertaking located in any lagging region.

60. Interpretation.

CHAPTER X

COMPANIES

61. Income tax to which any resident company is liable.

62. Income tax to which any non-resident company is liable.

63. Certain dividends not to form part of the total statutory income of the receiving company.

64. Profits of a company from transactions with its shareholders.

65. Resident company entitled to deduct tax from any dividend.

66. Certain undistributed profits to be treated as distributed.

67. Provisions applicable where the profits and income of a company are appropriated by the director of that company.

68. Provisions of this Chapter not to apply to charitable institutions etc.

CHAPTER XI

SPECIAL CASES

A-CHILDREN

69. Assessment of child’s income.

B-RECEIVER, TRUSTEE, EXECUTOR, and C.

70. Returns to be furnished by receiver and trustee and their liability to tax.

71. Chargeability to tax of trustee of an incapacitated person.

72. Liability of executor to tax payable by deceased person.

73. Return to be furnished by executor and chargeability of an executor and beneficiary.

74. Joint trustees and executors.

C-UNIT TRUSTS

75. Every unit trust deemed to be a company.

D-PARTNERSHIPS

76. Assessment of partnership income.

77. Assessment to be made in the name of the partnership in certain circumstances.

78. Tax chargeable on partnerships.

E-RESIDENCE

79. What constitutes residence.

F-LIABILITY OF NON-RESIDENT PERSONS

80. Chargeability of certain profits of non-resident persons.

81. Persons assessable on behalf of a non-resident person.

82. Liability of certain non-resident persons.

83. Profits of certain businesses to be computed as a percentage of the receipts.

84. Profits of non-resident person from sale of exported produce.

85. Liability to income tax of certain profits of non-resident person.

86. Exemption from income tax of non-resident persons in certain cases and liability of certain non-resident persons to income tax at reduced rates.

G-SHIPPING AND OPERATION OF AIRCRAFT

87. Profits of non-resident shipowners or charterers.

88. Master of ship to be an agent.

89. Refusal of clearance for ship where income tax is in arrears.

90. Profits of non-resident owners or charterers of aircraft.

91. Application of subsection (2) of section 87, section 88, and section 89, to profits of non-resident owners or charterers of any aircraft.

H-INSURANCE

92. Ascertainment of profits of insurance companies.

I-INTEREST, ETC. PAYABLE TO PERSONS OUTSIDE SRI LANKA

93. Interest on certain loans deemed to be profits and income.

94. Certain royalties or fees for technical services deemed to be profits and income.

95. Deduction of income tax from interest, and c. payable to persons outside Sri Lanka.

96. Deduction of income tax from payment made to any foreign entertainer or artiste.

J-RELIEF IN CASES OF DOUBLE TAXATION

97. Effect of agreements for double taxation relief.

98. Relief in respect of Sri Lanka income tax.

K-MISCELLANEOUS

99. Applicability of provisions relating to particular sources of profits or income.

100. How certain receipts of insurance are to be treated.

101. Ascertainment of income of clubs, trade associations etc.

102. Profits and income of non-governmental organisations to be chargeable with income tax.

103. Certain transactions and dispositions to be disregarded.

104. Profits and income or loss from international transactions between associated undertakings to be determined having regard to the arm’s length price.

104A. Profits and income or loss from transactions between associated undertakings to be determined having regard to the arm’s length price.

L-PETROLEUM EXPLORATION AND EXPLOITAION

105. Ascertainment of profits and income from business of petroleum exploitation under a Petroleum Resources Agreement.

M-ISLAMIC FINANCIAL TRANSACTIONS

105A. Profits and income arising from Islamic financial transactions are taxed.

105B. The use of electronic communications or electronic records.

CHAPTER XII

RETURNS

106. Returns and information to be furnished.

107. Audit reports to be furnished by partners etc.

108. Returns and other documents to contain the national identity card number or passport number.

109. Returns to be furnished of income received on account of or paid to other persons.

110. Occupiers to furnish returns of rent payable.

111. Return of lodgers and inmates.

112. Power of Commissioner-General to impose penalty for failure to furnish return.

CHAPTER XIII

PAYMENT OF TAX BY SELF-ASSESSMENT

113. Payment of tax by self-assessment.

CHAPTER XIV

DEDUCTION OF INCOME TAX FROM REMUNERATION OF EMPLOYEES BY EMPLOYERS

114. Employers to deduct income tax.

115. Employers to give notice to Commissioner-General.

116. Application of income tax tables.

117. Deduction of tax at special rates.

117A. Deduction of tax at special rates where an individual has more than one employment.

118. Directions to employers.

119. Employers to maintain proper records.

120. Duties of employer following deduction of income tax.

121. Adjustments of amount of income tax not paid or paid in excess.

122. Employee to give notice when necessary deductions are not made.

123. Income tax deducted not to form part of assets of employers.

124. Default in the deduction or payment of income tax.

125. Issue of assessments on employers.

126. Appeals.

127. Penalty for default.

128. Penalty on default.

129. Credit for tax paid.

130. Compliance with the provisions of this Chapter relating to forms.

131. Interpretation.

CHAPTER XV

PROVISIONS RELATING TO THE PAYMENT OF INCOME TAX BY A GOVERNMENT INSTITUTION
AND DEDUCTION FROM TAX ON OFFICIAL EMOLUMENTS OF ANY EMPLOYEE OF ANY GOVERNMENT INSTITUTION

132. Payment of income tax by a Government institution of its employees.

132A. Deduction from income tax on the official emoluments of any employee of any Government Institution.

CHAPTER XVI

DEDUCTIONS FROM INTEREST PAID BY BANKS AND FINANCIAL INSTITUTIONS

133. Banks and financial institutions to deduct income tax.

134. Deducting tax from interest on securities, treasury bonds etc.

135. Companies issuing corporate debt securities to deduct income tax.

136. Credit for tax deducted.

137. A notional tax credit on secondary market transactions.

138. Refund of income tax paid on interest liable to withholding tax.

139. Issue of directions where deductions are made under sections 133 or 135.

140. Duties of banks, financial institutions and companies following deductions of income tax.

141. Penalty for tax avoidance.

142. Default in the deduction of income tax.

143. Issue of assessments on banks and financial institutions.

144. Appeals.

145. Penalty for default.

146. Penalty and interest on default.

147. Interpretation.

148. Person or partnership chargeable with income tax.

149. Registered co-operative societies deemed to be companies.

150. Registration of banks and financial institutions.

CHAPTER XVII

DEDUCTION OF INCOME TAX FROM SPECIFIED FEES PAID BY SPECIFIED PERSONS

151. [Repealed]

152. [Repealed]

153. Specified persons to deduct income tax from specified fees.

154. Provisions of Chapter XVI to apply in relation to the deduction under this Chapter of income tax from specified fees.

CHAPTER XVIII

DEDUCTION OF INCOME TAX FROM RENT, LEASE RENT OR OTHER PAYMENT PAID BY ANY PERSON OR PARTNERSHIP FOR THE USE OR OCCUPATION OF ANY LAND OR BUILDING OTHER THAN FOR RESIDENTIAL PURPOSES

155. Persons paying rent, lease rent etc. to deduct income tax.

156. Application of the provisions of Chapter XVI to this Chapter.

CHAPTER XIX

DEDUCTION OF INCOME TAX FROM REWARD PAYMENTS MADE BY ANY GOVERNMENT INSTITUTION TO INFORMANTS AND OTHERS AND SHARES OF FINES PAID TO ANY PERSON
AND LOTTERY PRIZES, WINNINGS FROM GAMBLING OR WINNINGS FROM BETTING,
PAID BY ANY PERSON OR PARTNERSHIP

157. Government institution paying rewards or fines or other person or partnership paying lottery prizes etc. to deduct income tax.

158. Provisions of Chapter XVI to apply in relation to any deduction under this Chapter.

159. Registration of persons conducting lotteries or betting or gambling activities.

CHAPTER XX

DEDUCTION OF INCOME TAX FROM ANY ANNUITY OR ROYALTY PAID OR ANY MANAGEMENT FEE PAID OR SIMILAR PAYMENT MADE BY ANY PERSON OR PARTNERSHIP

160. Persons paying annuity, royalty, management fee or similar payment to deduct income tax.

161. Application of the provisions of Chapter XVI to this Chapter.

CHAPTER XXA

DEDUCTION OF INCOME TAX FROM THE SALE PRICE OF ANY GEM SOLD AT ANY AUCTION CONDUCTED BY THE NATIONAL GEM AND JEWELLERY AUTHORITY

161A. National Gem and Jewellery Authority to deduct income tax from the sale price of any gem sold at any auction.

CHAPTER XXI

RETENTION OF MONEYS IN CERTAIN PROVIDENT FUNDS

162. Retention of fifteen per centum of moneys lying to the credit of a contributor to a specified provident fund, to meet any tax payable.

CHAPTER XXII

ASSESSMENTS

163. Assessments and additional assessments.

164. Notice of Assessment.

CHAPTER XXIII

APPEALS

A-APPEALS TO THE COMMISSIONER-GENERAL

165. Appeals to the Commissioner-General.

B-APPEALS TO THE BOARD OF REVIEW

166. [Repealed]

167. [Repealed]

168. [Repealed]

169. [Repealed]

C-APPEALS TO THE COURT OF APPEAL

170. Appeal on a question of law to the Court of Appeal.

CHAPTER XXIV

FINALITY OF ASSESSMENTS AND PENALTY FOR INCORRECT RETURNS

171. Assessments or amended assessments to be final.

172. Penalty for incorrect return.

CHAPTER XXV

TAX IN DEFAULT AND SUMS ADDED THERETO

173. Tax in default and sums added thereto.

174. Punishment for tax in default.

CHAPTER XXVI

RECOVERY OF TAX

175. Tax to include fines etc.

176. Tax to be a first charge.

177. Notice to defaulter.

177A. Recovery of tax from principal officers and others.

178. Recovery of tax by seizure and sale.

179. Proceedings for recovery before Magistrate.

180. Recovery of tax out of debts and c.

181. Transfer of immovable property to Government in lieu of payment of tax in cash.

182. Tax in default to be recovered from remuneration of employee.

183. Tax in default of partner to be recovered from the assets of a partnership.

184. Recovery of income tax from the income of a child.

185. Recovery of income tax payable by a beneficiary from the trustee.

186. Recovery of income tax payable by a beneficiary from the executor.

187. Gift tax to be recovered from the donee in certain circumstances.

188. Recovery of tax from persons leaving Sri Lanka.

189. Use of more than one means of recovery.

190. Power of Commissioner-General to obtain information for the recovery of tax.

191. Liability of directors of private company in liquidation.

192. Delegation of Commissioner-General’s powers and functions.

193. Action not to commence after expiry of five years in certain circumstances.

CHAPTER XXVII

MISCELLANEOUS

194. Signature and service of notice.

195. Validity of notices, assessments etc.

196. Precedent partner to act on behalf of a partnership.

197. Principal officer to act on behalf of company or body of persons.

198. Who may act for incapacitated or non-resident person.

199. Indemnification of representative.

CHAPTER XXVIII

REPAYMENT

200. Tax paid in excess to be refunded.

201. Interest payable on the amount of a refund in certain circumstances.

CHAPTER XXIX

PENALTIES AND OFFENCES

202. Penalties for failure to make returns making incorrect returns and c.

203. Breach of secrecy and other matters to be offences.

204. Penal provisions relating to fraud and c.

204A. Penal provision relating to misinterpretation of provisions of this Act or any other Act administered by the Commissioner-General by auditors and tax practitioners.

205. Tax to be payable notwithstanding any prosecution or conviction for an offence under this Act.

206. Prosecution to be with the sanction of the Commissioner-General.

207. Admissibility of statements and documents in evidence.

CHAPTER XXX

ADMINISTRATION

208. Officers.

208A. Committee to interpret provisions of Act and issue rulings.

209. Official Secrecy.

210. Inland Revenue Incentive Fund.

211. Commissioner-General may pay rewards to informants.

CHAPTER XXXI

GENERAL

212. Regulations.

213. Forms.

214. Power to search buildings or places.

215. Power to search business premise.

216. Sinhala text to prevail in case of inconsistency.

CHAPTER XXXII

INTERPRETATION

217. Interpretation.

CHAPTER XXXIII

APPLICATION OF THE INLAND REVENUE ACT, NO. 38 OF 2000

218. Application of the Inland Revenue Act, No. 28 of 1979 or Inland Revenue Act, No. 38 of 2000.

SCHEDULES.

10 of 2006,

10 of 2007,

9 of 2008,

19 of 2009,

22 of 2011,

23 of 2011,

8 of 2012,

18 of 2013,

8 of 2014,

9 of 2015.

AN ACT to provide for the imposition of income tax for any year of assessment commencing on or after April 1, 2006.

[Date of Commencement: 31st March, 2006]

[General Note— Section 2 of the Inland Revenue (Amendment) Act 8 of 2014 has amended the Inland Revenue Act 2006 by the substitution for the words (1) “Senior Deputy Commissioner-General” wherever it occurred, of the words “Additional Commissioner-General”;

(2) “Commissioner” wherever such word occurred in the principal enactment, of the words “Senior Commissioner”;

(3) “Deputy Commissioner” wherever such words occurred in the principal enactment, of the word “Commissioner”;

(4) “Senior Assessor” wherever such words occurred in the principal enactment, of the words “Deputy Commissioner or Senior Deputy Commissioner”; and

(5) “Assessor” wherever such word occurred in the principal enactment, of the words “Assessor or Assistant Commissioner.]

1. Short title.

This Act may be cited as the Inland Revenue Act.

CHAPTER I

IMPOSITION OF INCOME TAX

2. Imposition of income tax.

(1) Income tax shall, subject to the provisions of this Act, be charged at the appropriate rates specified in the First, Second, Third, Fourth and Fifth Schedules to this Act, for every year of assessment commencing on or after April 1, 2006 in respect of the profits and income of every person for that year of assessment—

(a) wherever arising, in the case of a person who is resident in Sri Lanka in that year of assessment; and

(b) arising in or derived from Sri Lanka, in the case of every other person.

(2) For the purposes of this Act, “profits and income arising in or derived from Sri Lanka” includes all profits and income derived from services rendered in Sri Lanka or from property in Sri Lanka, or from business transacted in Sri Lanka, whether directly or through an agent.

CHAPTER II

INCOME CHARGEABLE WITH TAX

3. Income chargeable with Tax.

For the purpose of this Act, “profits and income” or “profits” or “income” means—

(a) the profits from any trade, business, profession or vocation for however short a period carried on or exercised;

(b) the profits from any employment;

(c) the net annual value of any land and improvements thereon occupied by or on behalf of the owner, in so far as it is not so occupied for the purposes of a trade, business, profession or vocation;

(d) the net annual value of any land and improvements thereon used rent-free by the occupier, if such net annual value is not taken into account in ascertaining profits and income under paragraphs (a), (b) or (c) of this section, or where the rent paid for such land and improvements is less than the net annual value, the excess of such net annual value over the rent to be deemed in each case the income of the occupier;

(e) dividends, interest or discounts;

(f) charges or annuities;

(g) rents, royalties or premiums;

(h) winnings from a lottery, betting or gambling;

(i) in the case of a non-governmental organisation, any sum received by such organisation by way of grant, donation or contribution or any other manner; and

(j) income from any other source whatsoever, not including profits of a casual and non-recurring nature.

4. Profits from employment.

(1) Profits from any employment include—

(a) —

(i) any wages, salary, allowance, leave pay, fee, pension, commission, bonus, gratuity, perquisite or such other payment in money which an employee receives in the course of his employment;

(ii) the value of any benefits to the employee or to his spouse, child or parent, including the value of any holiday warrant or passage;

(iii) any payment to any other person for the benefit of the employee or of his spouse, child or parent,

whether received or derived from the employer or others;

(b) the value of any conveyance granted free of any charge by an employer to any employee, or any sum so granted for the purchase of any conveyance;

(c) —

(i) any retiring gratuity or any sum received in commutation of pension;

(ii) any sum paid from a provident fund approved by the Commissioner-General to any employee at the time of his retirement from such fund, other than such part of that sum as represents his contributions to that fund, where such retirement took place prior to April 1, 2011;

[S 4(1)(c)(ii) am by s 2(1) of Act 22 of 2011
w.e.f. 1 April 2011.]

(iii) any sum paid from a regulated provident fund to an employee other than—

(A) such part of that sum as represents his contributions to that fund; and

(B) such part of that sum as represents the contributions made by the employer to that fund prior to April 1, 1968, and the interest which accrued on such contributions, if tax at the rate of fifteen per centum has been paid by such employer in respect of such contribution and interest,

[S 4(1)(c)(iii)(B) am by s 2(2) of Act 22 of 2011
w.e.f. 1 April 2011.]

where such employee retires from the employment prior to April 1, 2011;

[S 4(1)(c)(iii) am by s 2(2) of Act 22 of 2011
w.e.f. 1 April 2011.]

(iv) any sum received as compensation for loss of any office or employment;

(v) any sum paid from the Employees Trust Fund established by the Employees’ Trust Fund Act, No. 46 of 1980;

(d) the rental value of any place of residence provided rent-free by the employer or where a place of residence is provided by an employer at a rent less than the rental value, the excess of the rental value over such rent.

For the purpose of this paragraph the rental value of any place of residence shall be—

(i) the net annual value as defined in section 5 with the addition of the rates paid by the owner and of thirty three and one-third per centum of such net annual value on account of repairs and other expenses; or

(ii) the gross rent paid for such place of residence,

whichever is higher:

Provided that, for any year of assessment, any excess of the rental value—

(A) over one hundred and twenty thousand rupees, where the aggregate of the profits referred to in paragraph (a) does not exceed one million and eight hundred thousand rupees; and

(B) over one hundred and eighty thousand rupees, where the aggregate of the profits referred to in paragraph (a) exceeds one million and eight hundred thousand rupees,

shall be disregarded;

[S 4(1)(d)(ii) subs by s 2(1) of Act 10 of 2007
w.e.f. 1 April 2006.]

(e) the value at the time of its disposal, where such disposal takes place prior to April 1, 2007, of any share of a company received as a benefit from the employer or on behalf of the employer at no cost or at a price which is less than the prevailing market value of such share of that company, whether directly or through a share option scheme.

[S 4(1)(e) am by s 2(2) of Act 10 of 2007.]

The value at the time of its disposal of such share shall be the surplus over the cost of acquisition of such share—

(i) in the case of a sale, the sale price or the market value of such share as at the date of sale, whichever is higher;

(ii) in the case of disposal otherwise than by way of sale, the market value of such share as at the date of disposal;

(iii) in the case of an employee ceasing to be in the employment of such employer without selling or disposing of such share, the market value as at the last date of his employment with such employer, which date shall be deemed to be the date of the disposal of such share:

Provided however, in the event of the death of such employee during his period of employment with such employer, the value of such share shall be zero.

For the purpose of this paragraph, the profits from employment arising in accordance with the preceding provisions shall be charged with income tax in the year of assessment during which such sale, disposal or cessation of employment took place, on the basis that such profits from the sole taxable income within the meaning of Chapter VII for that year of assessment, and such tax shall be recovered in accordance with the provisions of Chapter XIV of this Act:

Provided that where the employer was not instrumental in the disposal of such share, such employee shall pay the tax due on such profit from employment in accordance with the provisions of Chapter XIII of this Act.

(2) For the purposes of this section, “the value of any benefit”, in relation to an individual who has received, or derived such benefit, means—

(a) where the market value of such benefit can be readily ascertained, such market value; or

(b) where the market value of such benefit cannot be readily ascertained or such benefit has no market value, the cost that would have to be incurred by any other individual to obtain such benefit:

Provided that the Commissioner-General may, having regard to the market value of that benefit or the cost that would have to be incurred by any other individual to obtain that benefit, by Order published in the Gazette, specify the value to be placed on any benefit, and where a value is so specified in respect of a benefit, such value shall be deemed to be the value of such benefit.

5. Net annual value of land and improvements thereon or of any place of residence.

(1) The net annual value of any land and improvements thereon or of any place of residence shall be determined on the basis of the rent which a tenant might reasonably be expected, taking one year with another, to pay for such land and improvements or for such place of residence (the tenant paying rates and the owner bearing the cost of repairs) subject to a deduction of twenty-five per centum on account of repairs and other expenses.

(2) Where the annual value of any land and improvements thereon or of any place of residence has been assessed for rating purposes by a local authority, such annual value less a deduction of twenty-five per centum on account of repairs and other expenses, shall be the net annual value, unless in the opinion of the Commissioner-General the assessment made by the local authority does not accurately represent the annual value of such land and improvements or place of residence, in the year for which the net annual value is being determined.

6. Profits or income arising from rents of land and improvements thereon.

The profits or income arising from rents of land and improvements thereon, shall be the gross rent which is receivable and can be recovered after deducting there from rates borne by the owner and where the owner undertakes to bear the cost of repairs, twenty-five per centum of the balance, but shall, where the rent recoverable in respect of such land and improvements is not restricted by any law for the time being in force, be not less than the net annual value after deducting there from any part thereof which is the income of the occupier within the meaning of paragraph (d) of section 3, due provision being made for any period in respect of which no rent is receivable or can be recovered.

CHAPTER III

EXEMPTION FROM INCOME TEX

7. Exemptions from income tax of certain persons (other than individuals) on the whole or any part of their profits and income.

There shall be exempt from income tax—

(a) the profits and income of—

(i) the World Tourism Organisation;

(ii) the United Nations Organisation, including the net annual value of any land and improvements thereon in Sri Lanka owned by and occupied by or on behalf of the Organisation;

(iii) the International Development Association;

(iv) the Asian Development Bank;

(v) the International Finance Corporation;

(vi) the International Bank for Reconstruction and Development or any other international or foreign organisation approved by the Minister, being profits and income attributable to the interest and other charges on any loan granted to the Development Finance Corporation;

(vii) the International Irrigation Management Institute;

(viii) the Trust Fund set up with European Economic Community Funds for the benefit of the settlers in—

(i) Zones 2 and 3 of System B area; and

(ii) System G area;

demarcated and administered by the Mahaweli Authority of Sri Lanka, established by the Mahaweli Authority Act, No. 23 of 1979;

(ix) the International Committee of the Red Cross;

(x) the Overseas Private Investment Corporation of the United States of America;

(xi) the Overseas Economic Co-operation Fund of Japan;

(xii) the World Conservation Union;

(xiii) the Commonwealth Development Corporation;

(xiv) the India-Sri Lanka Foundation incorporated under the Companies Act, No. 17 of 1982;

(xv) the European Investment Bank;

(xvi) the Nordic Development Fund established pursuant to the treaty entered between the Governments of Denmark, Finland, Iceland, Norway and Sweden on November 2, 1988;

(xvii) the Nordic Investment Bank;

(b) Profits and income, other than profits and income from dividends or interest of any person being—

(i) the Incorporated Council of Legal Education, established by Council of Legal Education Act;

(ii) the Institute of Charted Accountants of Sri Lanka, established by the Institute of Chartered Accountants of Sri Lanka Act, No. 23 of 1959;

(iii) the Sri Lanka Tea Board, established by the Sri Lanka Tea Board Law, No. 14 of 1975;

(iv) the Ceylon National Library Services Board, established by the Ceylon National Library Services Board Act, No. 17 of 1970;

(v) any University which is established or deemed to be established under the Universities Act, No. 16 of 1978;

(vi) the Coconut Development Authority, the Coconut Research Board and the Coconut Cultivation Board, established by or under the Coconut Development Act, No. 46 of 1971;

(vii) the Widows’ and Orphans’ Pension Fund for Public Officers of Sri Lanka;

(viii) any Widows’ and Orphans’ Pension Fund or Scheme established for the Local Government Service;

(ix) any institution or trust of a public character established by any written law, solely for the purposes of scientific research;

(x) the S.W.R.D Bandaranaike National Memorial Foundation, established by the S.W.R.D Bandaranaike National Memorial Foundation Law, No. 2 of 1975;

(xi) the National Science Foundation, established by the Science and Technology Development Act, No. 11 of 1994;

(xii) the Industrial Technology Institute, established by the Science and Technology Development Act, No. 11 of 1994;

(xiii) the Sri Lanka Standards Institution, established by the Sri Lanka Standards Institution Act, No. 6 of 1984;

(xiv) any Resort Authority, constituted under subsection (1) of section 57 of the Tourist Development Act, No. 14 of 1968;

(xv) the Ceylon Tourist Board, established by the Ceylon Tourist Board Act, No. 10 of 1966;

(xvi) the Monetary Board, established by the Monetary Law Act being the profits and income of the Central Bank of Sri Lanka;

(xvii) any registered society within the meaning of the Co-operative Societies Law, No. 5 of 1972, the majority of the members of which are resident in Sri Lanka, being profits and income of that society for any year of assessment ending on or before March 31, 2008, arising out of business specified by the Minister by notice published in the Gazette, having regard to Government policy in relation to the Co-operative movement.

[S 7(b)(xvii) am by s 2(1) of Act 9 of 2008 w.e.f. 1 April 2008; s 2(1) of Act 9 of 2015 w.e.f. 1 April 2015.]

For the purpose of ascertaining the membership of a registered society of which another registered society is a member, each of the members of the second-mentioned society shall be deemed to be a member of the first mentioned society;

(xviii) the Sri Lanka Foundation Institute, established by the Sri Lanka Foundation Law, No. 31 of 1973;

(xix) the Sri Lanka Inventors Commission, established by the Sri Lanka Inventors Incentives Act, No. 53 of 1979;

(xx) the Ceylon Medical Council, established by the Medical Ordinance;

(xxi) Ayurvedic Medical Council, established by the Ayurveda Act, No. 31 of 1961;

(xxii) the Homoeopathic Council, established by Homoeopathy Act, No. 7 of 1970.

(xxiii) the Sri Lanka College of Physicians established by the Sri Lanka College of Physicians (Incorporation) Act, No. 9 of 1971;

(xxiv) the Institute of Engineers, Ceylon, incorporated by the Institute of Engineers, Ceylon Act, No. 17 of 1968.

(xxv) the Sri Lanka Export Credit Insurance Corporation, established by the Sri Lanka Export Credit Insurance Corporation Act, No. 15 of 1978;

(xxvi) the Sri Lanka Export Development Board, established by the Sri Lanka Export Development Board Act, No. 40 of 1979.

(xxvii) the Sri Lanka Ex-Servicemen’s Association, established by the Sri Lanka Ex-Servicemen’s Association Law, No. 8 of 1976;

(xxviii) a company registered under Part XI of the Companies Act, No. 7 of 2007, being profits and income arising to such company from a ship which is—

(i) engaged in international operations;

(ii) owned or chartered by such company; and

(iii) deemed to be a Sri Lanka ship by reason of a determination made under paragraph (c) of section 30 of the Merchant Shipping Act, No. 52 of 1971,

other than profits and income arising to such company from the carriage, by that ship, of passengers, mails, livestock and goods, to or from a port in Sri Lanka;

[S 7(b)(xxviii) am by s 2(1)(a) of Act 8 of 2012
w.e.f. 1 April 2012.]

(xxix) the Institute of Fundamental Studies Sri Lanka, established by the Institute of Fundamental Studies, Sri Lanka Act, No. 55 of 1981;

(xxx) the International Winged Beans (Dambala) Institute, established by the International Winged Beans (Dambala) Institute Act, No. 7 of 1982;

(xxxi) the Buddhist and Pali University of Sri Lanka and any Higher Educational Institution, established by or under, the Buddhist and Pali University of Sri Lanka Act, No. 74 of 1981;

(xxxii) the Sri Lanka Institute of Printing, established by the Sri Lanka Institute of Printing Act, No. 18 of 1984.

(xxxiii) the Energy Conservation Fund, established by the Energy Conservation Fund Act, No. 2 of 1985;

(xxxiv) the Tea Small Holdings Development Authority, established by the Tea Small Holdings Development Law, No. 35 of 1975;

(xxxv) the Co-operative Development Fund, established under the Finance Act, No. 11 of 1963;

(xxxvi) the Board of Investment of Sri Lanka, established by the Board of Investment of Sri Lanka Law, No. 4 of 1978;

(xxxvii) the National Defence Fund, established by the National Defence Fund Act, No. 9 of 1985;

(xxxviii) the Sri Lanka Institute of Architects, incorporated by the Sri Lanka Institute of Architects Law, No. 1 of 1976;

(xxxix) the Surveyors’ Institute of Sri Lanka, incorporated by the Surveyors’ Institute of Sri Lanka Act, No. 22 of 1982;

(xl) the Institute of Chemistry, Ceylon, incorporated by the Institute of Chemistry (Ceylon) Act, No. 15 of 1972;

(xli) the Sri Lanka Institute of Development Administration, established by the Sri Lanka Institute of Development Administration Act, No. 9 of 1982;

(xlii) the Agricultural and Agrarian Insurance Board, established by the Agricultural and Agrarian Insurance Law, No. 20 of 1999;

(xliii) the Superior Courts Complex Board of Management, established by the Superior Courts Complex Board of Management Act, No. 50 of 1987;

(xliv) the Institute of Policy Studies of Sri Lanka, established by the Institute of Policy Studies of Sri Lanka Act, No. 53 of 1988;

(xlv) the Credit Information Bureau of Sri Lanka, established by the Credit Information Bureau of Sri Lanka Act, No. 18 of 1990;

(xlvi) Rubber Research Board, established under the Rubber Research Ordinance;

(xlvii) the Buddha Sasana Fund, established by the Buddha Sasana Fund Act, No. 35 of 1990;

(xlviii) the J R Jayawardena Centre, established by the J R Jayawardena Centre Act, No. 77 of 1988;

(xlix) the Institute of Supply and Materials Management, Sri Lanka, established by the Institute of Supply and Materials Management, Sri Lanka Act, No. 3 of 1981;

(l) the Stabilization fund for Tea, Rubber and Coconut, established under Part IV of the Finance Act, No. 38 of 1971;

(li) the Janasaviya Trust Fund, incorporated under the Trust Ordinance;

(lii) the Institute of Bankers of Sri Lanka, established by the Institute of Bankers of Sri Lanka Act, No. 26 of 1979;

(liii) the Institute of Personnel Management, Sri Lanka, incorporated by the Institute of Personnel Management, Sri Lanka Law, No. 24 of 1976;

(liv) Public Enterprises Reform Commission of Sri Lanka, established by the Public Enterprises Reform Commission of Sri Lanka, Act, No. 1 of 1996;

(lv) the Securities and Exchange Commission of Sri Lanka, established by the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987;

(lvi) the Bandaranaike Museum Committee, incorporated under the Bandaranaike Museum Committee (Incorporation) Act, No. 28 of 1997;

(lvii) the Geological Survey and Mines Bureau, established under the Mines and Minerals Act, No. 33 of 1992;

(lviii) Management Corporation, established under the Apartment Ownership Law, No. 11 of 1973 as last amended by Act No. 39 of 2003;

(lix) the Sri Lanka Institute of Taxation, incorporated by the Sri Lanka Institute of Taxation (Incorporation) Act, No. 21 of 2000;

(lx) the Telecommunication Regulatory Commission of Sri Lanka, established by the Sri Lanka Telecommunications Act, No. 25 of 1991;

[S 7(b)(lx) ins by s 2 of Act 19 of 2009 w.e.f. 1 April 2009.]

(lxi) the Insurance Board of Sri Lanka, established by the Regulation of Insurance Industry Act, No. 43 of 2000;

[S 7(b)(lxi) subs by s 2(1)(b) of Act 8 of 2012
w.e.f. 1 April 2012.]

(lxii) the Institute of Certified Management Accountants of Sri Lanka established by the Institute of Certified Management Accountants of Sri Lanka Act, No. 23 of 2009;

[S 7(b)(lxii) ins by s 2(1)(c) of Act 8 of 2012 w.e.f.1 April 2012; am by s 2(1)(a) of Act 18 of 2013
w.e.f. 1 April 2013.]

(lxiii) the Fund established by the National Child Protection Authority Act, No. 50 of 1998; and

[S 7(b)(lxiii) ins by s 2(1)(c) of Act 8 of 2012 w.e.f. 1 April 2012; am by s 2(1)(b) of Act 18 of 2013
w.e.f. 1 April 2013.]

(lxiv) College of General Practitioners of Sri Lanka established by the College of General Practitioners of Sri Lanka Act, No. 26 of 1974;

[S 7(b)(lxiv) ins by s 2(1)(c) of Act 18 of 2013
w.e.f. 1 April 2013.]

(lxv) Sri Lanka Social Security Board established by the Sri Lanka Social Security Board Act, No. 17 of 1996;

[S 7(b)(lxv) ins by s 2(1)(c) of Act 18 of 2013
w.e.f. 1 April 2013.]

(lxvi) any Public Corporation to the extent of provision of services on behalf of the Government of Sri Lanka, free of charge out of the funds voted by Parliament from the Consolidated Fund or out of any loan arranged through the Government;

[S 7(b)(lxvi) ins by s 2(1)(c) of Act 18 of 2013
w.e.f. 1 April 2013.]

(1xvii) Sri Lanka Savings Bank Limited incorporated under the Companies Act, No. 7 of 2007, which is merged with the National Development Trust Fund (NDTF);

[S 7(b)(lxvii) ins by s 2(1)(c) of Act 18 of 2013
w.e.f. 1 April 2013.]

(lxviii) Lanka Puthra Development Bank Limited incorporated under the Companies Act, No. 17 of 1982;

[S 7(b)(lxviii) ins by s 2(1)(c) of Act 18 of 2013
w.e.f. 1 April 2013; am by s 3(1)(a) of Act 8 of 2014
w.e.f. 1 April 2014.]

(lxix) 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 Government curricula set by the Ministry of Education and the circulars issued by such Ministry;

[S 7(b)(lxix) ins by s 2(1)(c) of Act 18 of 2013
w.e.f. 1 April 2013; am by s 3(1)(b) of Act 8 of 2014
w.e.f. 1 April 2014.]

(lxx) the National Enterprise Development Authority established under the National Enterprise Development Authority Act, No. 17 of 2006;

[S 7(b)(lxx) ins by s 3(1)(c) of Act 8 of 2014
w.e.f. 1 April 2014.]

(lxxi) the Sri Lanka Institute of Marketing incorporated under the Sri Lanka Institute of Marketing (Incorporation) Act, No. 41 of 1980;

[S 7(b)(lxxi) ins by s 3(1)(c) of Act 8 of 2014
w.e.f. 1 April 2014.]

(lxxii) the Institute of Physics, Sri Lanka incorporated under the Institute of Physics, Sri Lanka (Incorporation) Act, No. 12 of 1986;

[S 7(b)(lxxii) ins by s 3(1)(c) of Act 8 of 2014 w.e.f. 1 April 2014; am by s 2(2) of Act 9 of 2015 w.e.f. 1 April 2015.]

(lxxiii) the Lionel Wendt Memorial Fund incorporated under section 114 of the Trust Ordinance (Chapter 87); and

[S 7(b)(lxxiii) ins by s 3(1)(c) of Act 8 of 2014 w.e.f. 1 April 2014; am by s 2(3) of Act 9 of 2015 w.e.f. 1 April 2015.]

(Ixxiv) the Diabetes Association of Sri Lanka incorporated by the Diabetes Association of Sri Lanka (Incorporation) Act, No. 1 of 1992.

[S 7(b)(lxxiv) ins by s 2(4) of Act 9 of 2015 w.e.f. 1 April 2015.]

(c) the income of any local authority or Government institution, exclusive of—

(i) the income of any trust or other matter vested in or administered by such authority or institution, being income to which such authority or institution is not beneficially entitled; and

(ii) the profits and income for any period commencing on the date of acquisition or vesting, as the case may be, of any business undertaking acquired by or vested in the Government, under the Business Undertakings (Acquisition) Act, No. 35 of 1971;

(d) the profits and income of—

(i) the Government of any foreign country, being profits and income derived by that Government either directly or through any agency of that Government from aid granted in money, goods, services or in any other form by that Government, to the Government of Sri Lanka;

(ii) the Government of the People’s Republic of China, or of any agency of that Government, being profits and income derived from the business of ship-owner or charterer, and referred to in any agreement entered into between that Government and the Government of Sri Lanka;

(e) the profits and income of a charitable institution—

[S 7(e) am by s 3(2) of Act 22 of 2011 w.e.f. 1 April 2008; s 2(2)(a) of Act 8 of 2012 w.e.f. 1 April 2011.]

(i) the profits for any year of assessment commencing prior to April 1, 2011, of a business carried on by that institution, if such profits are applied solely to a charitable purpose of that institution, and—

[S 7(e)(i) am by s 2(2)(b) of Act 8 of 2012
w.e.f. 1 April 2011.]

(A) either the business is carried on in the course of the actual carrying out of a primary purpose of that institution or the work in connection with the business is mainly performed by the beneficiaries of that institution; or

(B) such institution receives grants from the Government of Sri Lanka and is approved by the Minister for the purposes of this paragraph, and the business is of a casual nature;

(ii) the net annual value of—

(A) any place of public worship and its premises administered by such institution;

(B) any place or premises owned and occupied by such institution solely for any of the purposes of that institution;

(iii) the profits and income from any property donated by royal or other grant before March 2, 1815, to any place of public worship administered by such institution, in so far as such profits and income are applied to the purposes for which such grant was made;

(f) the profits and income of any undertaking for operating yachts and pleasure crafts registered with the Director of Merchant Shipping, if such undertaking is—

(i) carried on by individuals who are not citizens of Sri Lanka or by a company the shares of which are owned entirely by individuals who are not citizens of Sri Lanka or by non-resident companies; and

(ii) approved by the Minister;

(g) the profits and income of—

(i) the Tower Hall Theatre Foundation, established by the Tower Hall Theatre Foundation Act, No. 1 of 1978;

(ii) the Central Cultural Fund, established by the Central Cultural Fund Act, No. 57 of 1960; and

(iii) the Presidents Fund, established by the Presidents Fund Act, No. 7 of 1978;

[S 7(g)(iii) am by s 2(2) of Act 9 of 2008
w.e.f. 1 April 2008.]

(h) the profits and income of any registered society within the meaning of the Co-operative Societies Law, No. 5 of 1972 or under the respective Statute enacted by a Provincial Council providing for such registration and the profits and income of Lak Sathoosa Limited registered under the Companies Act, No. 7 of 2007.

[S 7(h) subs by s 3(3) of Act 22 of 2011
w.e.f. 1 April 2011.]

(i) the profits and income of the Api Wenuwen Api Fund established by the Api Wenuwen Api Fund Act, No. 6 of 2008;

[S 7(i) ins by s 2(3) of Act 9 of 2008 w.e.f. 1 April 2008; am by s 3(4) of Act 22 of 2011 w.e.f. 1 April 2011.]

(j) the profits and income for every year of assessment within the period of ten years commencing on April 1, 2011, of—

(i) Sri Lankan Airlines Limited;

(ii) Mihin Lanka (Pvt.) Limited;

[S 7(j) ins by s 3(5) of Act 22 of 2011 w.e.f. 1 April 2011.]

(k) the profits and income for every year of assessment within the period of five years commencing on April 1, 2011, of—

(i) Ceylon Electricity Board;

(ii) National Water Supply and Drainage Board;

(iii) Ceylon Petroleum Corporation;

(iv) Sri Lanka Ports Authority,

if, twenty five per centum of the gross profits of such Board, Corporation or Authority, as the case may be, for the year of assessment immediately preceding such year of assessment is paid as dividend to the Government;

[S 7(k) ins by s 3(5) of Act 22 of 2011 w.e.f. 1 April 2011; am by s 2(2) of Act 18 of 2013 w.e.f. 1 April 2013; s 3(2) of Act 8 of 2014 w.e.f. 1 April 2014.]

(l) the profits and income for any year of assessment commencing on or after April 1, 2013, of Sri Lanka Deposit Insurance Scheme established by regulation made under the Monetary Law Act;

[S 7(l) ins by s 2(3) of Act 18 of 2013 w.e.f. 1 April 2013; am by s 3(3) of Act 8 of 2014 w.e.f. 1 April 2014.]

(m) the profits and income of any institution, established on or after April 1, 2013, by relocating in Sri Lanka the headquarters or regional head offices of institutions in the international network, as specified by the Commissioner-General by Notice published in the Gazette.

[S 7(m) ins by s 3(4) of Act 8 of 2014 w.e.f. 1 April 2014.]

8. Exemption from income tax of certain profits and income of certain officers and employees.

(1) There shall be exempt from income tax—

(a) the emoluments, pension and any other benefits arising to any person from the office of the President of the Republic of Sri Lanka;

(b) one half of the official emoluments for any year of assessment ending on or before March 31, 2008, paid to—

[S 8(1)(b) am by s 3(1)(a) of Act 9 of 2008
w.e.f. 1 April 2008.]

(i) any individual who holds any paid office under the Republic, out of the Consolidated Fund;

(ii) any employee of any public corporation, being a public corporation which pays such emoluments or such pension or such profits from employment wholly or partly out of the sums voted annually by Parliament to such corporation, from the Consolidated Fund;

(iii) the Governor of any Province, appointed under Article 154B of the Constitution;

(iv) any member of any Provincial Council;

(v) any employee of any Provincial Council or to any officer of any Provincial Public Service;

(vi) any member of any local authority;

(vii) any employee of any local authority;

(viii) any employee of any University which is established or deemed to be established, by the Universities Act, No. 16 of 1978;

(ix) any employee of the Institute of Policy Studies of Sri Lanka, established by the Institute of Policy Studies of Sri Lanka Act, No. 53 of 1988;

(x) a member or employee of any board or commission of inquiry established by or under any law, being a board or commission all the members of which are appointed by the President or by a Minister;

(c) such pension or any such profits from employment referred to in paragraph (c) of subsection (1) of section 4, as are received by any person in respect of past services performed by such person or by any other person, whether before or after the commencement of this Act, as an individual, an employee, the Governor, a member an officer or an employee, as the case may be, referred to in paragraph (b);

(d) the emoluments arising in Sri Lanka and any income not arising in Sri Lanka of any individual who is a scientist, technician, expert or adviser, who is not a citizen of Sri Lanka and who is brought to and employed in Sri Lanka by any undertaking, being an enterprise with which an agreement has been entered into by the Board of Investment under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, for the purposes of that undertaking:

[S 8(1)(d) am by s 3(1)(b) of Act 9 of 2008 w.e.f. 1 April 2008; s 3(1) of Act 19 of 2009 w.e.f. 1 April 2008.]

Provided that emoluments of an individual shall not be exempt from income tax, after the date of the cessation of employment of such individual in such undertaking or the date on which the exemption from tax granted by such agreement ends, whichever is the earlier;

(dd) The emoluments arising in Sri Lanka and any income not arising in Sri Lanka of any individual who is an expert and who is not a citizen of Sri Lanka and is employed in Sri Lanka by any undertaking which has entered into an agreement with the Government of Sri Lanka, being an agreement which provides for the exemption from income tax of such emoluments or by any Strategic Development Project Gazetted by the Board of Investment of Sri Lanka under subsection (4) of section 3 of the Strategic Development Projects Act, No. 14 of 2008;

For the purpose of this paragraph, “expert” means an individual who has expertise in such field as may be determined by the Commissioner-General, as being a field in which sufficient expertise is not available among the citizens of Sri Lanka;

[S 8(1)(dd) ins by s 3(1)(c) of Act 9 of 2008
w.e.f. 1 April 2008.]

(ddd) the emoluments arising in Sri Lanka of any individual who is an expert and who is not a citizen and is brought to and employed in Sri Lanka by any undertaking for the purposes of that undertaking, being an undertaking with which an agreement has been entered into by the Board of Investment of Sri Lanka and invested more than 50 million US dollars as direct foreign investment made on or after April 1, 2013, during the period of its tax holiday under section 17A or section 16D as the case may be, and if it is confirmed by the Board of Investment of Sri Lanka that the service rendered by him in carrying out activities of such undertaking in Sri Lanka is essential and such service is not obtainable from Sri Lanka:

Provided that the number of experts in an undertaking to whom this provision is applicable shall not exceed five.

For the purpose of this paragraph “expert” means an individual who has expertise in such field as may be determined by the Commissioner-General on the recommendation made by the Board of Investment of Sri Lanka, as being a field in which sufficient expertise is not available among the citizens of Sri Lanka;

[S 8(1)(ddd) ins by s 3(1) of Act 18 of 2013
w.e.f. 1 April 2013.]

(e) the official emoluments arising in Sri Lanka, and any income not arising in or derived from Sri Lanka of—

(i) the Diplomatic Representative in Sri Lanka (by whatever name or title designated) of the Government of any other country;

(ii) any such member of the staff of any Diplomatic Representative referred to in sub-paragraph (i), any such Consul or Trade Commissioner, and any such member of the staff of such Consul or Trade Commissioner, as is a citizen or subject of the country represented by that Diplomatic Representative, Consul or Trade Commissioner, if the Minister, on being satisfied that a corresponding official of the Government of Sri Lanka resident in the country represented by that person is or would be granted similar exemption from income tax by that country, declares that the exemption shall apply in that case:

Provided that the exemption shall not apply in the case of any person, if such person carries on or exercises in Sri Lanka any other employment or any trade, business, profession or vocation;

(iii) any expert, adviser, technician or official who is brought to Sri Lanka by the Government of Sri Lanka through any Specialized Agency of the United Nations Organisation, or under the Point Four Assistance Programme of the Government of the United States of America, or through the Colombo Plan Organisation (including its Technical Assistance Bureau) or through the Asia Foundation or any other organisation approved by the Minister as being of a similar character, and whose salary or principal emolument is—

(A) payable out of the funds provided by way of a grant or other assistance to the Government of Sri Lanka by any such Organisation, Programme or Foundation or any other organisation, as the case may be; or

(B) not payable by the Government of Sri Lanka;

(iv) any trainee from abroad who is sent to Sri Lanka under any of the Technical Co-operation Programmes of the United Nations Organisation and its Specialized Agencies, or of the Colombo Plan Organisation, or of any other organisation approved by the Minister as being of a similar character;

(v) any official of the United Nations Organisation who is resident in Sri Lanka, and who is not a citizen of Sri Lanka;

(vi) members of any naval, military or air force of any country other than Sri Lanka, who are in Sri Lanka at the request or with the concurrence, of the Government of Sri Lanka;

(vii) persons employed in any civil capacity by the Government of any country other than Sri Lanka who, not being persons resident in Sri Lanka for a period exceeding three months immediately prior to the date of commencement of such employment, are so employed in or visit Sri Lanka for any purpose connected with the presence in Sri Lanka, of such members of any naval, military or air forces, as are referred to in sub-paragraph (vi); and

(viii) any person who is not a citizen of Sri Lanka and who is employed in Sri Lanka, by the Asia Foundation or by the Overseas Economic Co-operation Fund of Japan or the Commonwealth Secretariat in any of its programmes for technical Co-operation with Sri Lanka or the Commonwealth Development Corporation:

Provided that the liability to income tax of any person referred to in sub-paragraphs (i), (ii), (iii), (iv) or (v) as regards other income arising in or derived from Sri Lanka, shall be the same as though he was a non-resident person;

(f) the official emoluments of any citizen of Sri Lanka who is employed as an expert, technician or official by the United Nations Organisation or by any Specialized Agency of that Organisation;

(g) the official emoluments of any individual who is employed by the World Tourism Organisation, the International Irrigation Management Institute, the Colombo Plan Bureau, the Asian Development Bank, the World Bank, the International Committee of the Red Cross, the World Conservation Union or the European Investment Bank;

(h) the value of any travel warrant or passage granted to a person who is not a citizen of Sri Lanka to enable him to come to Sri Lanka to assume duties or to visit his home abroad, or to return from Sri Lanka on the termination of his services, whether on retirement or otherwise, or of any travel warrant or passage granted to the spouse or any son or daughter of such person to come to Sri Lanka or to visit his or her home abroad or to return from Sri Lanka, on the termination of the services of such person;

[S 8(1)(h) am by s 3(1)(d) of Act 9 of 2008
w.e.f. 1 April 2006.]

(i) any allowance granted by an employer to his employee for travelling, subsistence and lodging, in respect of travel by such employee outside Sri Lanka, in connection with his employment;

(j) the emolument earned or the pension arising in any year of assessment, in foreign currency, by or to any individual resident in Sri Lanka in respect of—

(i) services rendered by him in that year of assessment; or

(ii) past services rendered by him or his spouse,

outside Sri Lanka in the course of any employment carried on, or exercised by him or his spouse, if such emoluments or pension are paid to him in Sri Lanka or such emoluments or pension (less such amount expended by such individual outside Sri Lanka as is considered by the Commissioner-General to be reasonable expenses) are remitted by him to Sri Lanka;

(k) the value of any free transport by motor coach provided by an employer to an employee for travel by such employee, from his residence to his place of work or from his place of work to his residence;

(l) such part of any sum paid to an employee at the time of his retirement, from any provident or 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;

(m) such part of any sum referred to in paragraph (c) of subsection (1) of section 4, paid to any employee at the time of his retirement from any employment in any company formed under the Conversion of Public Corporations or Government Owned Business Undertakings into Public companies Act. No, 23 of 1987, as is attributable to his period of service ending before April 1, 1997, in any public corporation or any Government Owned Business Undertaking, as the case may be;

(n) such part of any sum referred to in paragraph (c) of subsection (1) of section 4, paid to any employee at the time of his retirement from any employment in any public corporation other than any public corporation referred to in sub-paragraph (ii) of paragraph (b), or at any subsequent time, or at any subsequent time, as is attributable to the period of service of such employee prior to April 1, 1997, in such public corporation;

[S 8(1)(n) am by s 3(1) of Act 10 of 2007.]

(o) such part of any sum as does not exceed two million rupees, paid to any employee by the employer of such employee, being a sum paid as compensation for loss of any office or employment consequent to—

(i) the voluntary retirement by such employee in accordance with a scheme which in the opinion of the Commissioner-General, is uniformly applicable to all employees employed by such employer; or

(ii) the retrenchment of such employee by such employer in accordance with a scheme approved by the Commissioner of Labour;

[S 8(1)(o)(ii) am by s 3(2) of Act 10 of 2007.]

(p) the value of any benefit accruing before April 1, 2011, to an employee of any employer from the allotment or the grant, as the case may be, to such employee or to any nominee of such employee by or on behalf of such employer, of any share or any option to buy any share in any company, in accordance with a scheme which in the opinion of the Commissioner-General is reasonable;

[S 8(1)(p) ins by s 3(3) of Act 10 of 2007; am by s 3(1)(e) of Act 9 of 2008 w.e.f. 1 April 2008; s 4(1) of Act 22 of 2011 w.e.f. 1 April 2011.]

(q) the emoluments earned in any year of assessment commencing on or after April 1, 2007, by any resident individual from employment on a ship which is—

(i) owned or chartered by a company registered as an off-shore company under Part XI of the Companies Act, No. 7 of 2007; or

(ii) deemed to be a Sri Lanka ship by virtue of a determination made under paragraph (c) of section 30 of the Merchant Shipping Act, No. 52 of 1971;

[S 8(1)(q) ins by s 3(3) of Act 10 of 2007; am by s 4(2) of Act 22 of 2011 w.e.f. 1 April 2011.]

(r) rental value of one place of residence provided to any individual referred to in paragraph (b) of subsection (1), rent free or at a rent less than the rental value of such place;

[S 8(1)(r) ins by s 4(3) of Act 22 of 2011
w.e.f. 1 April 2011.]

(s) either the value of benefit from private use of one motor vehicle provided by the employer or the aggregate of any allowance paid in lieu of the provision of such vehicle and the value of any transport facility as may be specified by the Commissioner-General by Order published in the Gazette, subject to a maximum of fifty thousand rupees for a calendar month;

[S 8(1)(s) ins by s 4(3) of Act 22 of 2011 w.e.f. 1 April 2011; am by s 4(1) of Act 8 of 2014 w.e.f. 1 April 2014.]

(t) where the profits from employment of any individual who is a citizen of Sri Lanka or resident in Sri Lanka other than profits referred to in paragraph (c) of subsection (1) of section 4, exceeds five hundred thousand rupees, for any year of assessment commencing prior to April 1, 2013, then—

(i) such part of such profits in excess of five hundred thousand rupees; or

(ii) one hundred thousand rupees,

whichever is lower;

[S 8(1)(t) ins by s 4(3) of Act 22 of 2011 w.e.f. 1 April 2011; am by s 3(2) of Act 18 of 2013 w.e.f. 1 April 2013.]

(u) any special payment made to any individual or holder of office, referred to in paragraph (b) of subsection (1) for emergency or priority services or for any special task rendered or carried out by such individual;

[S 8(1)(u) ins by s 4(3) of Act 22 of 2011
w.e.f. 1 April 2011.]

(v) official emoluments arising in Sri Lanka to any non-citizen individual from the participation in any international event conducted in Sri Lanka;

[S 8(1)(v) ins by s 4(3) of Act 22 of 2011
w.e.f. 1 April 2011.]

(w) such part of official emoluments as does not exceed one hundred thousand rupees, for any year of assessment commencing prior to April 1, 2013, arising in Sri Lanka to any individual who is not a citizen of Sri Lanka and not resident in Sri Lanka;

[S 8(1)(w) ins by s 4(3) of Act 22 of 2011 w.e.f. 1 April 2011; am by s 3(3) of Act 18 of 2013 w.e.f. 1 April 2013; s 4(2) of Act 8 of 2014 w.e.f. 1 April 2014.]

(x) the profits and income not exceeding forty eight thousand rupees for any year of assessment, if the aggregate of such profits and income is not more than forty eight thousand rupees other than any employment income or any profits and income which is taxable at source as final tax, of any individual who is an employee and who is not engaged in any trade, business, profession or vocation, if tax is deducted from his employment income for that year of assessment; and

[S 8(1)(x) ins by s 4(3) of Act 8 of 2014 w.e.f. 1 April 2014; am by s 3(1) of Act 9 of 2015 w.e.f. 1 April 2015.]

(y) benefit from provision of any loan by the employer free of interest or at a subsidised rate of interest, if such loan is provided not out of funds borrowed for that purpose.

[S 8(1)(y) ins by s 3(2) of Act 9 of 2015 w.e.f. 1 April 2015.]

(2) Nothing in paragraph (d) of subsection (1) shall apply to or in relation to any individual who is not a citizen of Sri Lanka, and who—

(a) has entered into a contract of employment; or

(b) is brought to and employed in Sri Lanka,

with or by any undertaking, other than an undertaking being an enterprise with which an agreement has been entered into prior to December 31, 1994, on an application made in that behalf prior to November 11, 1993 by the Board of Investment of Sri Lanka, under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978.

(3) Notwithstanding the provisions of the proviso to paragraph (d) of subsection (1) and of subsection (2), the emoluments of any individual who is not a citizen of Sri Lanka and who is brought to and employed in Sri Lanka by an enterprise with which an agreement has been entered into by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, and which has opted to be charged with income tax in lieu of the exemption from income tax granted under such agreement, shall be exempt from income tax upto the date of cessation of employment of such individual in such enterprise or the date on which the exemption from income tax granted in respect of such enterprise would, but for such option, have ended, whichever is earlier, be exempt from income tax.

[S 8(3) am by s 3(2) of Act 9 of 2008 w.e.f. 1 April 2008; s 3(2) of Act 19 of 2009 w.e.f. 1 April 2008.]

9. Exemption from income tax of certain interest received.

There shall be exempt from income tax—

(a) the interest accruing to any company, partnership or other body of persons outside Sri Lanka, from any loan granted by that company, partnership or body of persons to any person or partnership in Sri Lanka, notwithstanding whether such company, partnership or body of persons has a permanent establishment or any business connection in Sri Lanka, if such loan is—

(i) granted prior to April 1, 2012, and approved by the Minister as being essential for the economic progress of Sri Lanka; or

(ii) granted on or after April 1, 2012;

[S 9(a) am by s 3(1) of Act 8 of 2012 w.e.f. 1 April 2012; s 5(1) of Act 8 of 2014 w.e.f. 1 April 2014.]

(aa) the interest accruing to any person or partnership or other body of persons outside Sri Lanka from investment made out of foreign currency brought in to Sri Lanka on or after April 1, 2012, in any security or bond issued by any person in Sri Lanka;

[S 9(aa) ins by s 4(1) of Act 18 of 2013 w.e.f. 1 April 2013.]

(b) the interest accruing to any person or partnership outside Sri Lanka, from any security, note or coupon issued by the Government of Sri Lanka in respect of a loan granted in foreign currency by that person or partnership to the Government of Sri Lanka, if such loan is—

(i) granted prior to April 1, 2012, and approved by the Minister as being essential for the economic progress of Sri Lanka; or

(ii) granted on or after April 1, 2012;

[S 9(b) am by s 3(2) of Act 8 of 2012 w.e.f. 1 April 2012.]

(c) the interest accruing to any person from moneys lying to his credit in a special account opened by him or on his behalf in a commercial bank with the approval of the Central Bank of Sri Lanka, for the deposit in accordance with the conditions imposed by the Central Bank of Sri Lanka, of sums obtained by him by the exchange of foreign currency held by him outside Sri Lanka;

(d) the interest accruing to any person on moneys lying to his credit in foreign currency in any account opened by him or on his behalf, in any commercial bank or in any specialised bank, with the approval of the Central Bank of Sri Lanka;

(e) the interest accruing to any person on moneys invested in Reconstruction Bonds issued by the Government of Sri Lanka, denominated in United States Dollars;

(f) the interest accruing on or before 31, March 2009, to any person on moneys invested in Sri Lanka Development Bonds denominated in United States Dollars, issued by the Central Bank of Sri Lanka;

[S 9(f) am by s 4(1) of Act 19 of 2009 w.e.f. 1 April 2009.]

(g) the interest accruing to any person on moneys lying to his credit in foreign currency with any foreign currency banking unit;

(h) such part of any interest as does not exceed—

(i) two hundred thousand rupees accruing for, or arising in, any year of assessment ending prior to April 1, 2011; and

(ii) five hundred thousand rupees accruing for, or arising in, any year of assessment commencing on or after April 1, 2011, but prior to January 1, 2015, to any individual, to any individual who is a citizen of Sri Lanka and resident in Sri Lanka and who is more than fifty nine years old the first day of that year of assessment, from any deposit maintained in the National Savings Bank established by the National Savings Bank Act, No. 30 of 1971 or by the Bank of Ceylon established by the Bank of Ceylon Ordinance or the People’s Bank established by the People’s Bank Act, No. 29 of 1961 or the State Mortgage and Investment Bank established by the State Mortgage and Investment Bank Law, No. 13 of 1975 or the Housing Development Finance Corporation Bank of Sri Lanka established by the Housing Development Finance Corporation of Sri Lanka Act, No. 7 of 1997 as amended by Act, No. 15 of 2003 or the SME Bank Ltd. and Lanka Puthra Development Bank Limited incorporated under the Companies Act, No. 17 of 1982 or any bank established under the Regional Development Banking Act, No. 6 of 1997 or any registered society within the meaning of the Co-operative Societies Law, No. 5 of 1972;

[S 9(h) am by s 4(1) of Act 9 of 2008 w.e.f. 1 April 2008; s 5 of Act 22 of 2011 w.e.f. 1 April 2011; s 4(1) of Act 9 of 2015 w.e.f. 1 April 2015.]

(hh) such part of any interest accruing for, or arising in, for the period commencing on January 1, 2015 and ending on March 31, 2015, or for any year of assessment commencing on or after April 1, 2015 to any individual who is a citizen of Sri Lanka and resident in Sri Lanka and who is sixty years or more or reaching sixty years during the period commencing from January 1, 2015 and ending on March 31, 2015 or who is more than fifty nine years old on the first day of the year of assessment commencing on or after April 1, 2015, from any deposit maintained in any bank or financial institution authorized by the Central Bank of Sri Lanka to accept deposits from the general public or any registered society within the meaning of the Co-operative Societies Law, No. 5 of 1972;

[S 9(hh) ins by s 4(2) of Act 9 of 2015 w.e.f. 1 April 2015.]

(hhh) such part of any interest accruing for, or arising in, any year of assessment commencing on or after April 1, 2015, to any individual or charitable institution where such individual or charitable institution maintains one savings account or more than one savings account, where the interest paid for a month is less than five thousand rupees.

For the purpose of this paragraph, “savings account” means an account, whether or not subject to any condition affecting the right to withdraw money therefrom and which bears interest at a rate not dependent on the period for which the deposit is maintained;

[S 9(hhh) ins by s 4(2) of Act 9 of 2015 w.e.f. 1 April 2015.]

(i) the interest or discount accruing or arising to any individual from a Sri Lanka Nation Building bond denominated in foreign currency and issued by or on behalf of the Government of Sri Lanka, being a bond purchased by such individual;

(j) the interest accruing in any year of assessment to any charitable institution, where it is proved to the satisfaction of the Commissioner-General in relation to that year of assessment, that such interest is applied solely for the purpose of providing care for the children, the elderly or the disabled, in a home maintained by such charitable institution;

[S 9(j) am by s 4(1) of Act 10 of 2007.]

(k) the interest accruing to any person from any money deposited in any Securities Investment Account;

[S 9(k) ins by s 4(2) of Act 10 of 2007; am by s 4(2) of Act 9 of 2008 w.e.f. 1 April 2008; s 5(2) of Act 8 of 2014
w.e.f. 1 April 2014.]

(l) the interest or discount arising or accruing to any non-resident citizen of Sri Lanka, from the purchase of any Motherland Development Bond denominated in foreign currency and issued by or on behalf of the Government of Sri Lanka;

[S 9(l) ins by s 4(3) of Act 9 of 2008 w.e.f. 1 April 2008.]

(m) the interest accruing or arising on or after April 1, 2008, from any investment made outside Sri Lanka to any person resident in Sri Lanka, where such interest is remitted to Sri Lanka through a bank.

[S 9(m) ins by s 4(3) of Act 9 of 2008 w.e.f. 1 April 2008.]

(n) the interest accruing to Lady Lochore Loan Fund on any loan granted by such Fund to any employee, of any Government Institution as defined in section 132 of this Act.

[S 9(n) ins by s 4(2) of Act 19 of 2009 w.e.f. 1 April 2009.]

(o) the interest or discount accruing or arising to any person from any investment made on or after January 1, 2013—

(i) in any Corporate Debt Security, quoted in any Stock Exchange licensed by the Securities and Exchange Commission; and

(ii) in any Municipal Bond issued by any Municipal Council with the approval of the Secretary of the Ministry of Finance.

[S 9(o) ins by s 4(2) of Act 18 of 2013 w.e.f. 1 April 2013.]

(p) the interest or discount accruing or arising to any person from any investment made on or after January 1, 2015 in any Corporate Debt Security, issued by the Urban Development Authority established by the Urban Development Authority Law, No. 41 of 1978; and

[S 9(p) ins by s 4(3) of Act 9 of 2015 w.e.f. 1 April 2015.]

(q) the interest accruing or arising to any individual who is Sri Lankan, living or employed abroad from any investment made on or after January 1, 2015 in Nation Development Bonds issued by the Central Bank of Sri Lanka on behalf of the Government.

[S 9(q) ins by s 4(3) of Act 9 of 2015 w.e.f. 1 April 2015.]

10. Exemption from income tax of certain dividends.

(1) There shall be exempt from income tax—

(a) any dividend paid by a company with which an agreement has been entered into by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, being an agreement which has been entered into prior to December 31, 1994, on an application made in that behalf prior to November 11, 1993—

(i) to any person, during the period for which the profits and income of that company are exempt from income tax under the terms of that agreement or within one year thereafter, out of the profits and income of the company which are exempt from income tax;

(ii) to any person, who is not resident in Sri Lanka notwithstanding anything to the contrary in subsection (1) of section 53;

(b) any dividend paid to a unit holder by any unit trust or mutual fund;

[S 10(1)(b) subs by s 5 of Act 10 of 2007.]

(c) any dividend paid by a flagship company with which an agreement has been entered into by the Board of Investment of Sri Lanka, to any shareholder during the period for which the profits and income of that company are exempt from income tax under the terms of that agreement or within one year thereafter, out of the profits and income of such company which are exempt from income tax.

In this paragraph, “flagship company” means any company which has entered into an agreement with the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978 and which has in accordance with such agreement invested in Sri Lanka, within the period specified in such agreement, not less than fifty million United State Dollars or its equivalent in any other foreign currency—

(i) in the purchase or construction of any building or in the purchase of any land, plant, machinery or furniture; and

(ii) in the acquisition of any asset not included in sub-paragraph (i),

for the use of the undertaking carried on by that company;

(d) any dividend paid by a company with which an agreement has been entered into on or after November 8, 1995, by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, to any shareholder of that company during the period for which the profits and income of that company are exempt from income tax under the terms of that agreement or within one year thereafter, out of the profits and income which are exempt from income tax;

(e) any dividend out of the profits of any company with which an agreement has been entered into by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, from the operation by such company of a hospital with facilities for paying and non-paying patients for indoor and outdoor treatment, paid to any shareholder of such company during the period of five years reckoned from the commencement of the year of assessment in which such hospital commences operations;

(f) any dividend out of the profits within the meaning of paragraph (a) of section 3 of a company—

(i) with which an agreement has been entered into by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978; and

(ii) to which a mining licence issued under the Mines and Minerals Act, No. 33 of 1992 has been assigned,

paid to any share holder of such company during the period for which the profits and income of that company are chargeable with income tax, at such rate as is determined in accordance with sub-paragraph (a) of the further proviso to paragraph (iv) of regulation 2 of Regulation No. 1 of 1995, made under section 24 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, as last amended by Regulation published in Gazette 1019/13 of March 19, 1998 and specified in such agreement or within one year thereafter;

(g) any dividend paid to a shareholder of a company out of such profits and income of that company arising on or after April 01, 1977, which are exempt from income tax under section 15, 17, 18, 18A, 19, 20, 20A, 21, 21A, 21B, 21C, 21D, 21E, 21F, 21G or 21H of the Inland Revenue Act, No. 38 of 2000 or section 8(a)(xxxviii), 15, 16A, 16B, 16C, 16D, 17A, 17C, 17D, 17J, 17JJ, 17K, 17KK, 17L, 17M, 18, 19, 20, 20A 20B, 20C, 21, 22, 22A, 22B, 22C, 22D, 22DDD, or 22DDDD of the Inland Revenue Act, No. 28 of 1979 or under the Inland Revenue Act, No. 4 of 1963, if such dividend is paid during the period for which such profits and income of that company are exempt from income tax under any of those provisions or within one year thereafter;

(h) any dividend paid to a shareholder of a company out of any such dividend received by that company during the period for which the dividends as is referred to in paragraphs (a), (c), (d), (e), (f), or (g) respectively, are exempt from income tax, if the first mentioned dividend is paid during any year of assessment in which the second mentioned dividend was received by that company or within one year thereafter;

(i) any dividend paid to a shareholder of a company out of any such dividend as is referred to in paragraphs (a), (c), (d), (e), (f) or (g) respectively, received by that company through one or more intermediary companies during the period for which the dividends referred to in paragraphs (a), (c), (d), (e), (f), (g) are exempt from income tax, or within two years thereafter, if the first mentioned dividend is paid during the year of assessment in which the second mentioned dividend was received or within one year thereafter;

[S 10(1)(i) am by s 4(1) of Act 8 of 2012
w.e.f. 1 April 2012.]

(j) any dividend paid on or after April 1, 2008, by a company not resident in Sri Lanka to any shareholder resident in Sri Lanka, where the amount of such dividend is remitted to Sri Lanka through a bank;

[S 10(1)(j) ins by s 5 of Act 9 of 2008 w.e.f. 1 April 2008; am by s 4(2) of Act 8 of 2012 w.e.f. 1 April 2012.]

(k) any dividend paid to a shareholder of a company out of such profits and income of that company which are exempt from income tax under section 16C or section 17A of this Act, if such dividend is paid during the period for which such profits and income are exempt from income tax:

Provided that where such company is a resident company engaged in any construction project, then such exemption shall be applicable to any dividend paid by such company during the period for which such profits and income are exempt from income tax or within one year thereafter;

[S 10(1)(k) ins by s 4(3) of Act 8 of 2012 w.e.f. 1 April 2012; s 10(1)(k) proviso am by s 6(1) of Act 8 of 2014 w.e.f. 1 April 2014.]

(l) any dividend paid to a shareholder of a company out of such dividend as is referred to in paragraph (j), received by that company, if the first mentioned dividend is paid within three months of the receipt of the second mentioned dividend by that company;

[S 10(1)(l) ins by s 6(2) of Act 8 of 2014
w.e.f. 1 April 2014; am by s 5(1) of Act 9 of 2015 w.e.f. 1 April 2015.]

(m) any dividend paid to a shareholder of any new undertaking commenced on or after April 1, 2015 for manufacture of products for export, and which is not formed by splitting-up or re-construction of an existing undertaking with an investment of not less than two million US Dollars (or equivalent in any other currency) and for which depreciation allowances are entitled to under paragraph (h) of the first proviso to paragraph (a) of subsection (1) of section 25, where such dividends are paid out of such profits and income of such new undertaking during the period reckoned from the year of assessment in which such new undertaking commences to carry on commercial operations and another four years of assessment immediately succeeding that year of assessment.

[S 10(1)(m) ins by s 5(2) of Act 9 of 2015 w.e.f. 1 April 2015.]

(2) —

(a) The provisions of paragraphs (c), (d), (e), or (f) of subsection (1) shall not apply to any dividend paid on or after April 1, 2004 in relation to any agreement referred to therein which has been entered into on or after November 6, 2002; or

(b) The provisions of paragraphs (g) of subsection (1) shall not apply to any dividend paid on or after April 1, 2004 by any company referred to in that paragraph which qualified for an exemption on or after November 6, 2002.

11. Exemption from income tax of certain profits and income from lands and improvements thereon.

(1) There shall be exempt from income tax—

(a) the net annual value of not more than one place of residence, owned by and occupied by or on behalf of an individual;

(b) the income accruing to the owner of a house which is converted into two or more places of residence, each such place of residence being separately assessed for the purpose of rates, such income accruing being the income from any such place of residence for—

(i) the year of assessment in which such conversion was effected and for the five years of assessment immediately succeeding that year of assessment, if the floor area of such place of residence does not exceed one thousand square feet; or

(ii) the year of assessment in which such conversion was effected and for the three years of assessment immediately succeeding that year of assessment, if the floor area of such place of residence exceeds one thousand square feet but does not exceed two thousand square feet;

(c) the net annual value of any land and improvements thereon owned by a body of persons, the primary object of which is the promotion of any sport which is recognized as a sport for the purposes of the Sports Law, No. 25 of 1973 and used for that object by that body.

(2) There shall be exempt from income tax—

(a) income accruing to the owner of any house from such house, the construction of which is completed prior to April 1, 2008, being income for that year of assessment in which such construction was completed and for the four years of assessment immediately succeeding that year of assessment, if such house is used solely for residential purposes:

Provided that where the floor area of the house is one thousand and five hundred square feet or less, the income accruing to the owner shall be exempt from income tax for the year of assessment in which the construction of that house is completed and for the six years of assessment immediately succeeding that year of assessment; and

(b) income accruing to the owner of any house from such house, the floor area of which is five hundred square feet or less and the construction of which is completed on or after April 1, 2008, being income for that year of assessment in which the construction was completed and for the four years of assessment immediately succeeding that year of assessment, if such house is used solely for residential purposes.

[S 11(2) subs by s 6 of Act 9 of 2008 w.e.f. 1 April 2008.]

(3) For the purposes of this section “owner” includes a co-owner.

12. Exemption from income tax of certain subsidies.

There shall be exempt from income tax any sum paid to any person as a subsidy or grant—

(a) out of the Capital Fund, established under the Sri Lanka Tea Board Law, No. 14 of 1975;

(b) out of the rubber Replanting Subsidy Fund, established under the Rubber Replanting Subsidy Act;

(c) by the Coconut Cultivation Board, established under the Coconut Development Act, No. 46 of 1971;

(d) by the Ministry of the Minister in charge of the subject of Fisheries, for the purchase by such person of fishing boats, marine engines, fishing gear and other fishing equipment;

(e) out of the Export Development Fund, established by the Sri Lanka Export Development Act, No. 40 of 1979;

(f) under any other scheme for the planting or replanting of any other agricultural plant;

(g) out of the Mill Development Fund, administered by the Coconut Development Authority established under the Coconut Development Act, No. 46 of 1971, for the modernization of machinery.

13. Miscellaneous exemptions from income tax.

There shall be exempt from income tax—

(a) the emoluments earned in any year of assessment prior to April 1, 2008, in foreign currency by any individual resident in Sri Lanka, in respect of services rendered by him in that year of assessment outside Sri Lanka in the course of any vocation carried on or exercised by him, if such emoluments (less such amount expended by such individual outside Sri Lanka as is considered by the Commissioner-General to be reasonable personal expenses) are remitted by him to Sri Lanka;

[S 13(a) am by s 7(1) of Act 9 of 2008 w.e.f. 1 April 2008.]

(b) the profits and income earned in foreign currency by a resident company or partnership carrying on or exercising any trade, business or vocation, in any year of assessment—

(i) in respect of services rendered by that company or partnership in that year of assessment outside Sri Lanka (including in relation to the year of assessment commencing on April 1, 2006, services relating to any construction project);

[S 13(b)(i) am by s 6(1) of Act 10 of 2007; s 6(1) of Act 22 of 2011 w.e.f. 1 April 2011.]

(ii) in respect of any off-shore business which does not in any way involve any goods manufactured or produced in Sri Lanka or any goods imported into Sri Lanka; and

[S 13(b)(ii) am by s 6(2) of Act 22 of 2011
w.e.f. 1 April 2011.]

(iii) in respect of any business of exporting any goods, being goods which were brought to Sri Lanka on a consignment basis, and re-exported without subjecting such goods to any process or manufacture, other than the repacking or labeling of such goods in the preparation to the market,

[S 13(b)(iii) ins by s 6(2) of Act 22 of 2011
w.e.f. 1 April 2011.]

in the course of carrying on or exercising such trade, business or vocation, if such profits and income (less any such amount expended by that company or partnership outside Sri Lanka as is considered by the Commissioner-General to be reasonable expenses) are remitted to Sri Lanka through a bank;

(bb) the profits and income earned in foreign currency by any manufacturer of textile, leather products, footwear or bags, from supplies made to any foreign buyer who has established his headquarters in Sri Lanka for management, finance, supply chain and billing;

[S 13(bb) ins by s 6(3) of Act 22 of 2011
w.e.f. 1 April 2011.]

(bbb) the profits and income earned in foreign currency by any person for any year of assessment commencing on or after April 1, 2012, in respect of any business of procuring goods from one country or manufacturing goods in one country and exporting to another country, other than Sri Lanka;

[S 13(bbb) ins by s 5(1) of Act 18 of 2013
w.e.f. 1 April 2013.]

(c) the profits and income earned in foreign currency in any year of assessment ending on or before March 31, 2008, by any partnership in Sri Lanka or any individual from any services rendered in or outside Sri Lanka, to any person or partnership outside Sri Lanka, being services rendered in the course of any profession, carried on or exercised by such individual or partnership, if such profits and income (less such reasonable amount as may be determined by the Commissioner-General for personal expenses incurred outside Sri Lanka, where the services are rendered outside Sri Lanka by an individual) are remitted from outside Sri Lanka to such individual or partnership through a bank in Sri Lanka;

[S 13(c) am by s 7(2) of Act 9 of 2008 w.e.f. 1 April 2008.]

(d) the profits and income earned in foreign currency in any year of assessment ending on or before March 31, 2008, by any company resident in Sri Lanka from services rendered outside Sri Lanka, to any person or partnership outside Sri Lanka, in the course of carrying on or exercising any profession, if such profits and income are remitted to such company through a bank in Sri Lanka;

[S 13(d) am by s 7(3) of Act 9 of 2008 w.e.f. 1 April 2008.]

(dd) the profits and income for any year of assessment earned in foreign currency by any resident company, a resident individual or any partnership from services rendered outside Sri Lanka in that year of assessment, in carrying out any construction project in the course of any trade, business or vocation, if such profits and income (less any such amount expended by that company, individual or partnership outside Sri Lanka as is considered by the Commissioner-General to be reasonable expenses) are remitted to Sri Lanka through a bank;

[S 13(dd) ins by s 6(2) of Act 10 of 2007.]

(ddd) the profits and income earned in foreign currency by any resident company, any resident individual or any partnership in Sri Lanka, from any service rendered in or outside Sri Lanka to any person or partnership outside Sri Lanka, other than any commission, discount or similar receipt for any such service rendered in Sri Lanka, if such profits and income (less such amount, if any, expended outside Sri Lanka as is considered by the Commissioner-General to be reasonable expenses) are remitted to Sri Lanka through a bank;

[S 13(ddd) ins by s 7(4) of Act 9 of 2008 w.e.f. 1 April 2008; am by s 6(4) of Act 22 of 2011 w.e.f. 1 April 2011.]

(dddd) notwithstanding the provisions of paragraph (ddd) of this section, the profits and income for the period commencing from April 1, 2009 and ending on March 31, 2011, earned in foreign currency by any resident company, any resident individual or any partnership in Sri Lanka, from any service rendered in or outside Sri Lanka to any person or partnership outside Sri Lanka, if such profits and income (less such amount, if any, expended outside Sri Lanka as is considered by the Commissioner-General to be reasonable expenses) are remitted to Sri Lanka, through a bank;

[S 13(dddd) ins by s 5(1) of Act 19 of 2009
w.e.f. 1 April 2008.]

(ddddd) any profits and income earned in foreign currency from outside Sri Lanka, by any resident individual who is a citizen of Sri Lanka, if such profits and income (less such amount, if any, expended outside Sri Lanka as is considered by the Commissioner-General to be reasonable expenses) are remitted to Sri Lanka through a bank;

[S 13(ddddd) ins by s 5(2) of Act 18 of 2013
w.e.f. 1 April 2013.]

(e) the income accruing to a person receiving instruction at any university, college, school or other educational establishment from a scholarship, exhibition, bursary, or similar educational endowment;

(f) any capital sum received by way of death gratuity or as compensation for death or injuries;

(g) wound and disability pensions granted to members or ex-members of the Forces of Her Majesty, the Queen of the United Kingdom;

(h) United States Government disability pensions;

(i) the profits and income within the meaning of paragraph (a) of section 3 arising to any person from the export of gold, gems or jewellery;

(ii) the profits and income within the meaning of paragraph (a) of section 3, arising from the cutting and polishing of gems which are brought to Sri Lanka and exported after such cutting and polishing;

[S 13(ii) ins by s 7(5) of Act 9 of 2008 w.e.f. 1 April 2008.]

(j) such part of the profits and income arising from the sale for payment in foreign currency, of any gem or jewellery, being a sale made in Sri Lanka by any person authorized by the Central Bank of Sri Lanka to accept payment for such sale in foreign currency;

(k) any prize received by a person as an award made by the President of the Republic of Sri Lanka;

(l) any prize received by a person as an award made by the Government in recognition of an invention created, or any research undertaken, by such person;

(m) any sum received by a person from the President’s Fund established by the President’s Fund Act, No. 7 of 1978;

(n) any sum received by a person from the National Defence Fund established by the National Defence Fund Act, No. 9 of 1985;

(o) such part of any sum as does not exceed three thousand rupees paid by the Sri Lanka Bureau of Foreign Employment, established by the Sri Lanka Bureau of Foreign Employment Act, No. 21 of 1985, to any person or partnership licensed by such Bureau, to carry on the business of a foreign employment agency, in respect of any Sri Lankan for whom employment outside Sri Lanka has been provided or secured by such person or partnership;

(p) such part of any sum as does not exceed three thousand rupees received in any year of assessment by the Sri Lanka Bureau of Foreign Employment, established by the Sri Lanka Bureau of Foreign Employment Act, No. 21 of 1985, in respect of any Sri Lankan for whom employment outside Sri Lanka has been provided or secured by such Bureau;

(q) such part of any sum or the aggregate of sums as does not exceed one hundred thousand rupees received by any individual, as an award or awards in recognition of his excellence in the field of fine arts, literature or sports, being an award made with the prior written approval of the Minister in charge of the subject of fine arts, literature or sports, as the case may be;

(qq) one half of the profits and income of any person for any year of assessment commencing on or after April 1, 2009, derived from the sales or from any other means of any book written by him and whether published by himself or by any other person, for a period of one year commencing from the date of its first publication;

[S 13(qq) ins by s 5(2) of Act 19 of 2009
w.e.f. 21 October 2008.]

(qqq) one half of the profits and income of any person for any year of assessment commencing on or after April 1, 2009, derived from the production of any drama, for a period of one year commencing from the date of its first public performance.

For the purpose of this paragraph, “drama” means a theatrical presentation based on a text, either written, oral or otherwise, which through dramatic performance by actors on a stage or any other suitable space, conveys a story or any other narrative, for a collective public audience;

[S 13(qqq) ins by s 5(2) of Act 19 of 2009
w.e.f. 21 October 2008.]

(qqqq) any export development rebate paid to an exporter by the Export Development Board, established by the Sri Lanka Export Development Act, No. 40 of 1979, under the Export Development Reward Scheme;

[S 13(qqqq) ins by s 5(2) of Act 19 of 2009
w.e.f. 21 October 2008.]

(qqqqq) one half of the profits and income for any period on or after April 1, 2015 from the production of films or dramas of any individual who produces an award winning cinema or a drama at an international film or drama festival, for a period of five years of assessment commencing from the year in which such award is received;

[S 13(qqqqq) ins by s 6(1) of Act 9 of 2015 w.e.f. 1 April 2015.]

(r) any interest or discount accruing to the “Sudu Nelum Movement”, established by the Government and registered under section 114 of the Trust Ordinance, being interest or discount on any sum of money deposited by the Sudu Nelum Movement with any commercial bank;

(s) any profits and income within the meaning of paragraph (a) of section 3, derived by, arising from or accruing to any person from the sale of any bond, debenture or other debt instrument issued by a company and held by him, being a bond, debenture or other debt instrument which at the time of such sale is quoted in any official list published by any Stock Exchange, licensed by the Securities and Exchange Commission of Sri Lanka;

(t) any profits and income—

(i) for the year of assessment commencing on April 1, 2006, derived by or accruing to any person or partnership other than any unit trust, mutual fund or venture capital company; and

(ii) for any year of assessment commencing on or after April 1, 2007, derived by or accruing to any person or partnership, from the sale of any share, a right to any share, a bonus share or a share warrant in respect of which the share transaction levy under section 7 of the Finance Act, No, 5 of 2005, has been charged;

[S 13(t) am by s 6(3) of Act 10 of 2007.]

(tt) the profits and income accruing to any person from the redemption of a unit of a Unit Trust or a Mutual Fund;

[S 13(tt) ins by s 5(1) of Act 8 of 2012 w.e.f. 1 April 2012.]

(ttt) the profits and income arising or accruing to any Unit Trust from investments made on or after January 1, 2015 in US Dollar deposits or US Dollar denominated securities listed in any foreign stock exchange;

[S 13(ttt) ins by s 6(2) of Act 9 of 2015 w.e.f. 1 April 2015.]

(u) the profits and income earned in any year of assessment in foreign currency by any National Association of Sports registered under the Sports Law, No. 25 of 1973, in respect of services rendered by such Association, or in the course of taking part in any sport within the meaning of the Sports Law, in that year of assessment outside Sri Lanka, if such profits and income (less such amount as the Commissioner-General considers to be reasonable expenses incurred outside Sri Lanka) are remitted by such Association to Sri Lanka;

(v) the profits and income of any person or any partnership derived from the participation as a competitor, official or organizer of any sporting or athletic event held in Sri Lanka and at which competitor from outside Sri Lanka participates.

For the purpose of this paragraph—

(i) “organizer” means anybody of persons, corporate or unincorporate, established in accordance with any law for the time being in force in the country represented at such event by such body of persons or by one or more individuals or one or more teams nominated by or with the concurrence of such body of persons, being a body of persons which governs the conduct of any sporting or athletic event in the country so represented, and includes anybody of persons the rules made by which, govern the conduct of such event; and

(ii) “competitor” in relation to any sporting or athletic event, means any team which participates in any such event or any individual who participates in any such event either as an individual or as a member of such team;

(vv) the profits and income of any individual who is not a citizen of Sri Lanka and who is brought to Sri Lanka as a trainer of any sport, being profits and income derived by such individual in the capacity of such trainer in Sri Lanka;

[S 13(vv) ins by s 5(2) of Act 8 of 2012 w.e.f. 1 April 2012.]

(w) any annuity accruing in any year of assessment to any individual who reaches in that year of assessment or had reached in any previous year of assessment the age of sixty years, being an annuity for life or for a period of not less than ten years, purchased from any bank or any insurance company registered under the Regulation of Insurance Industry Act, No. 43 of 2000, and which accrues, in return for full consideration in money or moneys worth paid for the purchase of such annuity;

(x) an amount equal to the interest payable to any bank in Sri Lanka, in respect of any loan granted to a company, the full amount of which is invested—

(i) in any new undertaking referred to in subsection (2) of section 20, where such company is a company referred to in that section; and

(ii) in any relocated undertaking referred to in subsection (2) of section 21, where such company is a company referred to in that section;

[S 13(x) subs by s 6(4) of Act 10 of 2007
w.e.f. 1 April 2006.]

(xx) an amount equal to the interest payable to any bank in Sri Lanka in respect of any loan granted, where the full amount of such loan is invested in any new undertaking referred to in section 24C;

[S 13(xx) ins by s 7(6) of Act 9 of 2008 w.e.f. 1 April 2008.]

(xxx) an amount equal to the interest or the discount paid or allowed, as the case may be, 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 by or on behalf of the Government of Sri Lanka;

[S 13(xxx) ins by s 5(3) of Act 19 of 2009
w.e.f. 1 April 2009.]

(xxxx) an amount equal to the interest or the discount paid or allowed, as the case may be, to any person on or after April 1, 2009, on any Sri Lanka Development Bond denominated in Untied States Dollars, issued by the Central Bank of Sri Lanka;

[S 13(xxxx) ins by s 5(3) of Act 19 of 2009
w.e.f. 1 April 2009.]

(xxxxx) the profits and income derived by or accruing to—

(i) any non-resident person or any licensed commercial bank from the sale of any sovereign bond referred to in paragraph (xxx); or

(ii) any person from the sale on or after April 1, 2009, of any Sri Lanka Development Bond referred to in paragraph (xxxx);

[S 13(xxxxx) ins by s 5(3) of Act 19 of 2009
w.e.f. 1 April 2009.]

(xxxxxx) —

(i) an amount equal to the interest payable to any bank or other financial institution in Sri Lanka, in respect of any loan granted out of the moneys lying into the credit of the Investment Fund account of such bank or institution, maintained and operated in accordance with the guidelines set by the Central Bank; or

(ii) an amount equal to the interest payable to any bank or other financial institution in Sri Lanka, in respect of any loan granted—

(A) to any company for investing in full in an undertaking referred to in section 16C;

[S 13(xxxxxx)(ii)(A) am by s 5(3) of Act 8 of 2012
w.e.f. 1 April 2012.]

(B) to any person or partnership for investing in full for the operation of re-opened abandoned factory.

In this paragraph “re-opened abandoned factory’’ means a factory which was engaged in the production or manufacture of any commodity or article but which had not been so engaged for an unbroken period of not less than three years, preceding November 22, 2010, and which commences the production or manufacture of such commodity or article or any other commodity or article in commercial quantities before April 1, 2012.

[S 13(xxxxxx) ins by s 6(5) of Act 22 of 2011
w.e.f. 1 April 2011.]

(xxxxxxx) any profits and income from any investment made on or after January 1, 2013—

(i) in any Corporate Debt Security, quoted in any Stock Exchange licensed by the Securities and Exchange Commission;

(ii) in any Municipal Bond issued by any Municipal Council with the approval of the Secretary of the Ministry of Finance;

[S 13(xxxxxxx) ins by s 5(3) of Act 18 of 2013
w.e.f. 1 April 2013.]

(xxxxxxxx) the interest earned by the DFCC Bank established by the Development Finance Corporation of Ceylon Act, No. 35 of 1955 and National Development Bank PLC incorporated under the Companies Act, No. 7 of 2007, from moneys lent out of funds raised from outside Sri Lanka to Small and Medium enterprises, plantations, construction industry or other manufacturing industries.

[S 13(xxxxxxxx) ins by s 5(3) of Act 18 of 2013
w.e.f. 1 April 2013.]

(y) any royalty received by a non-resident person from a company with which an agreement has been entered into before April 1, 2004 by the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, in respect of any period during which the profits and income of that company are exempt from income tax under the terms of that agreement:

Provided that where such company opts, in lieu of the exemption from income tax under the terms of such agreement, to be charged with income tax, the exemption from income tax granted by this paragraph shall apply to any royalty received by any non-resident person from such company in respect of the period during which the profits and income of such company would, but for such option, have been so exempt from income tax.

(yy) any profits and income arising or accruing to any company, partnership or body of persons outside Sri Lanka, from any payment made in respect of the use on or after April 1, 2008, of any plant, machinery or equipment supplied by such company, partnership or body of persons to the Government of Sri Lanka, any public corporation, any Government Institution or to any other undertaking, for the use in any project approved by the Minister as being essential for the economic development of Sri Lanka;

[S 13(yy) ins by s 7(7) of Act 9 of 2008 w.e.f. 1 April 2008.]

(yyy) any profit or income from any song or other musical composition, derived by or accruing to the lyricist, the composer of the music or the singer, as the case may be, of such song or musical composition, on or after April, 1, 2009;

[S 13(yyy) ins by s 5(4) of Act 19 of 2009
w.e.f. 1 February 2009.]

(yyyy) the profits and income arising or accruing to any person from any undertaking for the operation of any port terminal in Sri Lanka;

[S 13(yyyy) ins by s 6(6) of Act 22 of 2011
w.e.f. 1 April 2011.]

(yyyyy) the profits and income from any service rendered by any person or partnership in any port in Sri Lanka in the course of any business carried on within such port;

[S 13(yyyyy) ins by s 6(6) of Act 22 of 2011
w.e.f. 1 April 2011.]

(yyyyyy) any royalty received in foreign currency by any person resident in Sri Lanka from outside Sri Lanka, if such royalty is remitted to Sri Lanka through a bank;

[S 13(yyyyyy) ins by s 5(4) of Act 8 of 2012
w.e.f. 1 April 2012.]

(yyyyyyy) any royalty, franchising fee or any payment for designing received by any foreign collaborator from a company registered with the Board of Investment, during the period of tax holiday under section 17A or section 16D as the case may be, where the investment made in Sri Lanka from foreign direct investment raised outside Sri Lanka exceeds 50 Million US dollars and if such services are considered by the Director General of the Board of Investment to be essential in carrying out activities in Sri Lanka and is not obtainable in Sri Lanka;

[S 13(yyyyyyy) ins by s 5(4) of Act 18 of 2013
w.e.f. 1 April 2013.]

(yyyyyyyy) the profits and income of any person resident in Sri Lanka who acquires any internationally recognized intellectual property on or after April 1, 2014 and who earns profits and income by way of royalty out of such intellectual property, if such royalty is received in foreign currency and remitted to Sri Lanka through a bank;

[S 13(yyyyyyyy) ins by s 7(1) of Act 8 of 2014
w.e.f. 1 April 2014.]

(yyyyyyyyy) the profits and income arising or accruing to any company, partnership or body of persons outside Sri Lanka for any year of assessment commencing on or after April 1, 2015, from any payment made by way of royalty as a specific requirement of any information technology or business process outsourcing company in Sri Lanka, for the year of assessment in which such company in Sri Lanka commences such operations and for another year of assessment immediately succeeding that year of assessment;

[S 13(yyyyyyyyy) ins by s 6(3) of Act 9 of 2015 w.e.f. 1 April 2015.]

(z) any winning from a lottery, the gross amount of which does not exceed five hundred thousand rupees.

(zz) the profits and income of any individual who is not a citizen of Sri Lanka and who is employed in Sri Lanka in any undertaking, being profits and income arising or derived from outside Sri Lanka during the period commencing from April 1, 2008, and ending on the date of cessation of such employment;

[S 13(zz) ins by s 7(8) of Act 9 of 2008 w.e.f. 1 April 2008.]

(zzz) the profits and income within the meaning of paragraph (a) of section 3, of any undertaking for the construction and sale of houses for low income families under a scheme approved by the Urban Development Authority or the National Housing Authority, being houses the floor area of which does not exceed five hundred square feet, if the sale of any such house takes place before April 1, 2013.

[S 13(zzz) ins by s 7(8) of Act 9 of 2008
w.e.f. 1 April 2008.]

(zzzz) the profits and income derived by or accruing to any person or partnership from investment in Economic Resurgence Certificates, utilizing money lying to credit of any account referred to in paragraph (d) of section 9 of this Act, from and out of monies deposited in such account on or after February 1, 2009:

Provided that where investment in Economic Resurgence Certificates is made by utilizing money partly from money deposited on or after February 1, 2009 and partly from money which was already lying to the credit of the account as of that date, the exemption from income tax granted by this paragraph shall apply only to such part of the profits and income which is attributable to the money out of the deposits made on or after February 1, 2009.

[S 13(zzzz) ins by s 5(5) of Act 19 of 2009
w.e.f. 1 April 2009.]

(zzzzz) the profits and income arising or accruing to any person from any undertaking for the construction of any Port in Sri Lanka.

[S 13(zzzzz) ins by s 6(7) of Act 22 of 2011
w.e.f. 1 April 2011.]

(zzzzzz) the profits and income arising or accruing to any person from the administration of any sports ground, stadium or sports complex.

[S 13(zzzzzz) ins by s 5(5) of Act 8 of 2012
w.e.f. 1 April 2012.]

(zzzzzzz) where an individual who is a citizen of Sri Lanka, employed abroad returns to the country on or after January 1, 2013 and invests his earnings from employment abroad to commence any business of manufacture of any article, other than liquor or tobacco products, or provision of any service, the profits and income of such person from such business for a period of five years commencing from the beginning of the year of assessment in which the commercial operations of such business commenced.

[S 13(zzzzzzz) ins by s 5(5) of Act 18 of 2013
w.e.f. 1 April 2013.]

(zzzzzzzz) the profits and income arising or accruing to any company, partnership or body of persons in a country outside Sri Lanka, from any payment made for the use of any computer software, by Sri Lankan Air Lines Ltd or Mihin Lanka (Pvt) Ltd, as a special requirement of such Airlines, if a Double Taxation Avoidance Agreement providing relief for double taxation of such profits and income is not in force between Sri Lanka and that country or tax is not payable in such country on such profits and income.

[S 13(zzzzzzzz) ins by s 7(2) of Act 8 of 2014
w.e.f. 1 April 2014.]

14. Exemption of certain profits and income of any resident guest.

(1) The profits and income of any resident guest—

(a) not being profits and income arising in or, derived from Sri Lanka; and

(b) accruing from moneys lying to his credit in any account opened by him in a commercial bank, for the deposit of sums remitted to him in foreign currency from any country outside Sri Lanka,

shall be exempt from income tax.

(2) For the purpose of this section “resident guest” means a person to whom a tax exemption has been granted under the Resident Guest (Tax Exemption) Act, No. 6 of 1979.

15. Exemptions of profits and income derived from outside Sri Lanka.

Notwithstanding anything to the contrary in any other provision of this Act, the profits and income derived from outside Sri Lanka by any individual who has been a non-resident of Sri Lanka and who arrives and stays in Sri Lanka, shall be exempt from income tax—

(i) for any year of assessment commencing prior to April 1, 2013, if such individual is a citizen of both Sri Lanka and any other country;

(ii) for any year of assessment commencing on or after April 1, 2013, if such individual is a citizen of Sri Lanka and—

(a) citizen of any other country; or

(b) has obtained permanent resident status or similar status in any other country under which such individual may obtain citizenship in such country,

at the time of such arrival and during the whole of such stay.

[S 15 am by s 6 of Act 18 of 2013 w.e.f. 1 April 2013.]

16. Exemption from income tax of profits and income from agricultural undertaking.

(1) The profits and income within the meaning of paragraph (a) of section 3, other than any profits and income from the disposal of any capital asset, of any person or partnership from any agricultural undertaking carried on in Sri Lanka, shall be exempt from income tax for each year of assessment within the period of five years, commencing on April 1, 2006.

[S 16(1) am by s 7 of Act 10 of 2007.]

(2) In this section “agricultural undertaking” means—

(a) an undertaking for the purpose of the production of any agricultural, horticultural or any dairy produce;

(b) an undertaking for the cleaning, sizing, sorting, grading, chilling, dehydrating, packaging, cutting, canning for the purpose of changing the form, contour or physical appearance of any produce referred to in paragraph (a), in preparation of such produce for the market; or

[S 16(2)(b) am by s 6(1) of Act 19 of 2009
w.e.f. 1 April 2009.]

(c) any undertaking for the conversion of any produce referred to in paragraph (a) into such product as may be specified by the Commissioner-General, by Order published in the Gazette.

(3) In relation to an undertaking which consists of the production of any agricultural, horticultural or dairy produce and utilizing such produce to manufacture any product (other than any product specified under paragraph (c) of subsection (2)), such produce shall be deemed to have been sold for the manufacture of such product at the open market price prevailing at the time of such deemed sale, and the exemption granted under subsection (1) shall be applicable to that undertaking, on the profits and income computed on the basis of such deemed sale.

[S 16(3) subs by s 6(2) of Act 19 of 2009
w.e.f. 1 April 2009.]

16A. Exemption from income tax of the profits and income of any undertaking for fishing.

(1) The profits and income within the meaning of paragraph (a) of section 3, other than any profits and income from the disposal of any capital asset, of any person or partnership from any undertaking for fishing carried on in Sri Lanka, shall be exempted from income tax for each year of assessment within the period of five years commencing on April 1, 2011.

(2) In this section “undertaking for fishing’’ includes any undertaking for the cleaning, sizing, sorting, grading, chilling, dehydrating, packaging, cutting or canning of fish in preparation of such produce for the market.

(3) In relation to an undertaking which consists of fishing and utilizing such fish for manufacturing of any product, such fish shall be deemed to have been sold for the manufacture of such product at the open market price prevailing at the time of such deemed sale, and the exemption granted under subsection (1) shall be applicable to that undertaking, on the profits and income computed on the basis of such deemed sale.

[S 16A ins by s 7 of Act 22 of 2011 w.e.f. 1 April 2011.]

16B. Exemption from income tax of the profits and income of any undertaking for producing agricultural seeds or planting materials.

(1) The profits and income within the meaning of paragraph (a) of section 3, other than any profits and income from the disposal of any capital asset, of any person or partnership from any undertaking for producing of agricultural seeds or planting materials, or primary processing of such seeds or materials, shall be exempted from income tax for each year of assessment within the period of five years, commencing on April 1, 2011.

(2) In this section “primary processing’’ means cleaning, sizing, sorting, grading, chilling, dehydrating, cutting, canning or packaging for the purpose of preparation of such produce for the market.

(3) In relation to an undertaking which consists of producing of agricultural seeds or planting materials and utilizing such seeds or materials in the agriculture or horticulture, such produce shall be deemed to have been sold for such purpose at the open market price prevailing at the time of such deemed sale, and the exemption granted under subsection (1) shall be applicable to that undertaking, on the profits and income computed on the basis of such deemed sale.

[S 16B ins by s 7 of Act 22 of 2011 w.e.f. 1 April 2011.]

16C. Exemption from income tax of the profits and income of any new undertaking investing not less than fifty million rupees.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of any capital asset) of any new undertaking referred to in subsection (2), and carried on by any person or partnership on or after April 1, 2011, shall be exempt from income tax for the period specified in Column III as corresponding to the investment specified in Column II and the types of activities specified in Column I of the Schedule hereto reckoned from the commencement of the year of assessment in which such undertaking commences to make profits from transactions entered into in that year of assessment, or from the commencement of the year of assessment immediately succeeding the year of assessment in which the undertaking completes a period of two years reckoned from the date on which the undertaking commences to carry on commercial operations, whichever occurs earlier.

[S 16C(1) ins by s 7 of Act 22 of 2011 w.e.f. 1 April 2011; am by s 6(1) of Act 8 of 2012 w.e.f. 1 April 2011.]

SCHEDULE

Column I

(Activities)

Column II

(Amount of investment in Rupees)

Column III

(period of exemption)

Agriculture, animal husbandry or fishing (including processing), creative work including work of an artist, Information Technology

Not less than 25 million, but less than 50 million

4 years

Any activity referred to in paragraph (a) of subsection (2), but not including services relating to agriculture (products shall be with a minimum of 35% value addition, if more than 50% of the production is to be sold in the domestic market)

Not less than 50 million, but less than 100 million

4 years

Not less than 100 million but less than 200 million

5 years

Not less than 200 million

6 years

[Sch ins by s 6(2) of Act 8 of 2012 w.e.f. 1 April 2012.]

(2) For the purpose of subsection (1), “new undertaking’’ means an undertaking—

(a) which is engaged in—

(i) agriculture, animal husbandry or fishing;

(ii) the manufacture of any article (including the processing of such article), other than any liquor or any tobacco product;

(iii) the provision of services of Information Technology;

(iv) software development;

(v) business process outsourcing;

(vi) knowledge process outsourcing;

(vii) the provision of healthcare services;

(viii) the provision of educational services;

(ix) the provision of beauty care services;

(x) the provision of cold room and storage facilities;

(xi) tourism;

(xii) fitness centre services or providing facilities for sports;

(xiii) creative work including work of an artist;

(xiv) mini hydro power projects;

(b) in which the sum invested in the acquisition of fixed assets after March 31, 2011 but prior to April 1, 2015 is not less than the corresponding sum specified in Column II of the Schedule to subsection (1);

[S 16C(2)(b) am by s 7(2)(i) of Act 18 of 2013
w.e.f. 1 April 2012.]

(c) which commences commercial operations on or after April 1, 2011; and

[S 16C(2)(c) am by s 7(2)(ii) of Act 18 of 2013
w.e.f. 1 April 2012.]

(d) which is not formed by the splitting up or reconstruction or acquisition of any business which was previously in existence.

[S 16C(2)(d) ins by s 7(2)(iii) of Act 18 of 2013
w.e.f. 1 April 2012.]

For the purposes of this section “the amount of investment” means the cost of any land, plant, machinery, equipment and other fixed assets.

[S 16C(2) subs by s 6(3) of Act 8 of 2012
w.e.f. 1 April 2011.]

16D. Exemption for five years, of profits and income of strategic import replacement undertakings engaged in the manufacture of specified products.

The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of any capital asset) of any new undertaking established on or after April 1, 2012 but prior to April 1, 2015 and engaged in the manufacture of any of the products referred to in Column I of the Schedule hereto with an amount not less than the corresponding minimum investment referred to in Column II thereof, shall be exempt from income tax for a period of five years reckoned from the commencement of the year of assessment in which such undertaking commences to make profits from transactions entered into in that year of assessment or from the commencement of the year of assessment immediately succeeding the year of assessment in which such undertaking completes a period of two years from the date on which such undertaking commences to carry on commercial operations; whichever occurs earlier where such undertaking is not formed by the splitting up or reconstruction or acquisition of any business which was previously in existence.

For the purposes of this section “the investment” means the cost of any land, plant, machinery, equipment and other fixed assets.

SCHEDULE

Column I (Product)

Column II (Minimum Investment in USD Million)

Fabric

5

Pharmaceutical

10

Milk Powder

30

Cement

50

[S 16D ins by s 7 of Act 8 of 2012 w.e.f. 1 April 2012; am by s 8 of Act 18 of 2013 w.e.f. 1 April 2012; s 8 of Act 8 of 2014 w.e.f. 1 April 2014.]

16E. Exemption of profits and income from cultivation of any renewable energy crops and transactions connected with manufacturing, distribution and marketing of organic fertilizer.

The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the disposal of any capital asset) of any person or partnership—

(i) from any undertaking of cultivating any renewable energy crop in Sri Lanka, for a period of ten years;

(ii) from all transactions connected with manufacturing, distribution and marketing of organic fertilizers or biological fertilizers, commencing on or after April 1, 2013, shall be exempt from income tax.

[S 16E ins by s 9 of Act 18 of 2013 w.e.f. 1 April 2013; am by s 9 of Act 8 of 2014 w.e.f. 1 April 2014.]

17. Exemption from income tax of the profits and income of any company from any specified undertaking.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of capital assets) of any company from any specified undertaking referred to in subsection (2), and carried on by such company on or after April 1, 2006, shall be exempt from income tax for a period of five years reckoned from the commencement of the year of assessment in which the undertaking commences to make profits from transactions entered into in that year of assessment or from the commencement of the year of assessment immediately succeeding the year of assessment in which the undertaking completes a period of two years reckoned from the date on which the undertaking commences to carry on commercial operations, whichever occurs earlier:

[S 17(1) am by s 8(1) of Act 10 of 2007; s 8 of Act 9 of 2008 w.e.f. 1 April 2008.]

Provided that where the period for which the profits and income are exempt from income tax commences after March 31, 2008, the period for which such profits and income are exempt, shall be three years.

[S 17(1) proviso ins by s 8 of Act 9 of 2008
w.e.f. 1 April 2008.]

(2) For the purposes of subsection (1) “specified undertaking” means—

(a) an undertaking carried on by a company—

(i) incorporated before April 1, 2002, with a minimum investment of rupees fifty million invested in such undertaking; or

(ii) incorporated on or after April 1, 2002, but prior to April 1, 2011, with a minimum investment of rupees ten million invested not later than March 31, 2012, in such undertaking,

[S 17(2)(a)(ii) am by s 8(2) of Act 10 of 2007; s 8 of Act 22 of 2011 w.e.f. 1 April 2011; s 8(1) of Act 8 of 2012
w.e.f. 1 April 2012.]

and which is engaged in agriculture, agro processing, industrial and machine tool manufacturing, machinery manufacturing, electronics, export of non-traditional products, or information technology and allied services;

(b) any designated project carried on by a company which qualify under the same investment criteria and incorporated prior to April 1, 2002 as referred to in sub-paragraph (i) of paragraph (a) of this subsection and which conforms to the prescribed guidelines; and

[S 17(2)(b) am by s 8(2) of Act 8 of 2012 w.e.f. 1 April 2012.]

(c) an undertaking of a pioneering nature as determined by the Minister by Order published in the Gazette not later than March 31, 2012, carried on by a company with an investment in excess of rupees two hundred and fifty million.

[S 17(2)(c) am by s 8(3) of Act 8 of 2012
w.e.f. 1 April 2012.]

(3) —

(a) Notwithstanding the provisions of subsection (1), for any company having an investment not less than rupees one thousand million in any pioneering undertaking as determined by the Minister, the period of exemption shall be the corresponding period referred to in Column II below, provided the corresponding minimum investment as given in Column I has been made—

Column I (Rs. Million)

Column II (Years)

1000- 2499

08

2500 and above

10

(b) The amount of investment referred to in paragraph (b) of subsection (2), shall not be applicable to any Export Production Village Company;

(c) In case of a company receiving income from any other trade or business in addition to the income from any specified undertaking referred to in subsection (2), the exemption provided under this section shall be applicable only in respect of the profits and income from the relevant specified undertaking as referred to in that subsection.

(4) For the purposes of this section—

(a) “agriculture” means the cultivation of land with plants of any description, rearing of fish or animal husbandry, including poultry farms, veterinary and artificial insemination services and other support services;

(b) “agro processing” means the processing of any agricultural product or fishing product including deep sea fishing, but excludes the processing of black tea in bulk and the manufacture of liquor;

(c) “non-traditional products” means any goods (other than black tea not in packet or package form and each packet or package weighing not more than one kilogram, crepe rubber, sheet rubber, scrap rubber, latex and fresh coconuts), including deemed export of such goods, where not less than eighty per centum of the total turnover of such undertaking is from export or deemed export of such non-traditional goods, for any year of assessment;

[S 17(4)(c) am by s 7(1) of Act 19 of 2009
w.e.f. 1 April 2009.]

(d) “deemed export” means the production or manufacture and supply by any person or partnership of any commodities (other than black tea not in packet or package form and each packet or package weighing not more than one kilogram, crepe rubber, sheet rubber, scrap rubber, latex and fresh coconuts) to any exporter of such goods without further production or manufacture by such exporter or the production or manufacture and supply of any goods to any exporter for the production, manufacture or packaging for export of any commodity which is a non-traditional product.

[S 17(4)(d) am by s 7(2) of Act 19 of 2009
w.e.f. 1 April 2009.]

17A. Exemption from income tax of the profits and income from any new undertaking engaged in any specified activities.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of any capital asset) of any company from any new undertaking referred to in subsection (2), and carried on by such company on or after April 1, 2011, shall be exempt from income tax for the period specified in Column II of the Schedule hereto as corresponding to the investment specified in Column I of that Schedule, reckoned from the commencement of the year of assessment in which such undertaking commences to make profits from transactions entered into in that year of assessment or from the commencement of the year of assessment immediately succeeding the year of assessment in which such undertaking completes a period of two years reckoned from the date on which such undertaking commences to carry on commercial operations, whichever occurs earlier:

SCHEDULE

Column I (Investment in Rupees Million)

Column II (Exemption period)

More than 300 and not more than 500

6 years

More than 500 and not more than 700

7 years

More than 700 and not more than 1,000

8 years

More than 1,000 and not more than 1,500

9 years

More than 1,500 and not more than 2,500

10 years

More than 2,500

12 years

[S 17A(1) ins by s 9 of Act 22 of 2011 w.e.f. 1 April 2011; am by s 9(1) of Act 8 of 2012 w.e.f. 1 April 2011.]

(2) For the purposes of subsection (1), “new undertaking” means any undertaking—

(a) which is engaged in any of the activities specified below—

(i) manufacture of boats, pharmaceuticals, tyres and tubes, motor spare parts, furniture, ceramics, glass ware or other mineral based products, rubber based products, cosmetic products, edible products manufactured out of locally cultivated agricultural products, construction materials or electrical or electronic goods;

(ii) manufacture, production or processing of non-traditional goods for export, including deemed exports which shall constitute not less than ninety per centum of the total production and in the case of apparels and textile, seventy five per centum of the total production;

[S 17A(2)(a)(ii) am by s 10(1) of Act 18 of 2013
w.e.f. 1 April 2013.]

(iii) cultivation of food crops or industrial crops;

(iv) horticulture;

(v) forestry;

(vi) animal husbandry in relation to dairy, poultry, swine, goat etc;

(vii) provision of services to a person or partnership outside Sri Lanka, for payment where the total amount of such payment shall not be less than seventy per centum in convertible foreign currency;

(viii) tourism or tourism related projects;

(ix) hotels, guest houses or similar services;

(x) infrastructure projects including construction of commercial buildings;

(xi) development of any warehousing or storage facility;

(xii) power generation using renewable resources;

(xiii) establishment of industrial estates, special economic zones or knowledge cities;

(xiv) urban housing or town centre development;

(xv) provision of any sanitation facility or waste management systems;

(xvi) development of water services;

(xvii) development of internal water ways, or related transport (goods or passengers);

(xviii) construction of hospitals and provision of health care services;

(xix) repair of aircrafts or maritime vessels or ship breaking;

(xx) sporting services (e.g. motor racing or golf course);

(xxi) information technology;

(xxii) software development;

(xxiii) business or knowledge process outsourcing;

(xxiv) any project in light or heavy engineering industry;

(xxv) artificial insemination for cattle (dairy development);

(xxvi) provision of educational services; or

(xxvii) any other activity, as may be prescribed by the Minister taking into consideration the development of national economy;

(b) in which the sum invested in the acquisition of fixed assets after March 31, 2011 but prior to April 1, 2015 is not less than the corresponding sum specified in Column I of the Schedule to subsection (1);

(c) which commences commercial operations on or after April 1, 2011, but prior to April 1, 2016; and

(d) which is not formed by the splitting up or reconstruction or acquisition of any business which was previously in existence.

For the purpose of this section “the investment” means the cost of any land, plant, machinery, equipment and other fixed assets.

[S 17A(2) subs by s 9(2) of Act 9 of 2012 w.e.f. 1 April 2011; am by s 10(2) and (3) of Act 18 of 2013; s 10 of Act 8 of 2014 w.e.f. 1 April 2014.]

18. Exemption from income tax of certain undertakings for infrastructure development.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of capital assets) of any company from any specified undertaking referred to in subsection (2), shall be exempt from income tax for a period not less than six years but not more than twelve years commencing from not later than March 31, 2009, as may be determined by the Minister by Order published in the Gazette, if the amount of the investment made by such company in such undertaking is not less than one thousand million rupees. Such period shall be reckoned, from commencement of the year of assessment in which the undertaking commences to make profits or any year of assessment not later than two years reckoned from the date on which the undertaking commences to carry on commercial operations, whichever is earlier.

[S 18(1) am by s 9 of Act 9 of 2008 w.e.f. 1 April 2008.]

(2) For the purposes of subsection (1) “specified undertaking” in relation to a company means an undertaking carried on by such company and which is engaged in any such activity relating to infrastructure development as may be determined by the Minister by Order published in the Gazette, having regard to the interests of the national economy.

19. Exemption from income tax of small scale infrastructure undertakings.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of capital assets) of any company from any specified undertaking referred to in subsection (2), shall be exempt from income tax for a period of five years, reckoned from the year of assessment in which the undertaking commences to make profits from transactions entered into in that year of assessment or from the commencement of the year of assessment immediately succeeding the year of assessment in which the undertaking completes a period of two years reckoned from the date on which the undertaking commences to carry on commercial operations, whichever occurs earlier:

[S 19(1) am by s 10 of Act 9 of 2008 w.e.f. 1 April 2008.]

Provided that where the period for which the profits and income are exempt from income tax commences after April 1, 2008, the period for which such profits and income are exempt, shall be three years.

[S 19(1) proviso ins by s 10 of Act 9 of 2008
w.e.f. 1 April 2008.]

(2) For the purpose of subsection (1) “specified undertaking” in relation to a company means an undertaking carried on by such company and which is engaged in infrastructure development for the generation of power, tourism, recreation, warehousing and cold storage, garbage collection or disposal, construction of houses or construction of hospitals, and the total amount invested within one year from the commencement of the undertaking, but not later than March 31, 2012 is not less than ten million rupees but not exceeding fifty million rupees.

[S 19(2) am by s 10 of Act 8 of 2012 w.e.f.
1 April 2012.]

20. Exemption of the profit and income of any new industrial undertaking.

(1) The profits and income within the meaning of paragraph (a) of section 3, (other than any profits and income from the sale of any capital asset,) of any company, form any new undertaking referred to in subsection (2), shall be exempt from income tax for every year of assessment falling within the period determined in accordance with subsection (3) and subsection (4).

(2) For the purpose of subsection (1), a “new undertaking” in relation to any company and to any year of assessment, means an undertaking—

(a) carried on by such company;

(b) located in any area outside the administrative districts of Colombo and Gampaha and specified in part A or Part B of the Second Schedule to this section;

(c) in which the sum invested before April 1, 2010—

(i) in any plant, machinery, furniture, building or land used in such undertaking, where such undertaking is an agricultural undertaking; or

(ii) in any plant, machinery, furniture or building used in such undertaking, where such undertaking is an undertaking other than an agricultural undertaking,

is not less than thirty million rupees;

[S 20(2)(c) am by s 11(1) of Act 9 of 2008 w.e.f. 1 April 2008; s 10(1) of Act 22 of 2011 w.e.f. 1 April 2009.]

(d) not formed by the splitting up or reconstruction or acquisition of any undertaking which was previously in existence;

(e) in which the number of employees employed at any time prior to April 1, 2010 and thereafter throughout that year of assessment, is not less than—

[S 20(2)(e) am by s 11(2) of Act 9 of 2008 w.e.f. 1 April 2008; s 10(2) of Act 22 of 2011 w.e.f. 1 April 2009.]

(i) fifty, where such undertaking is an undertaking for the provision of information technology enabling services or printing on paper or the manufacture of any packing materials; or

(ii) two hundred, where such undertaking is an undertaking other than an undertaking referred to in sub-paragraph (i).

(3) Where the sum invested in accordance with paragraph (c) of subsection (2) falls within the range specified in any entry in Column I of the First Schedule hereto, the period for which the profits and income are exempt from income tax, shall be the period specified in the corresponding entry—

(a) in sub Column A of Column II, where the undertaking referred to in that subsection is located within any administrative district referred to in Part A of the Second Schedule hereto; and

(b) in sub Column B of Column II, where the undertaking referred to in that subsection is located within any administrative district referred to in Part B of the Second Schedule hereto.

FIRST SCHEDULE

Column I

Column I

Period in years

Sum invested in rupees million

Sub Column A

Sub Column B

More than 30 but not more than 50

5

7

More than 50 but not more than 100

6

8

More than 100

8

10

SECOND SCHEDULE

Part A

Part B

Any administrative district, part of the boundary of which overlaps with part of the boundary of the administrative district of Colombo or of Gampaha.

Any administrative district other than—

— any administrative district specified in part A and

— administrative districts of Colombo and Gampaha

(4) The period specified in each entry in sub-Column A or sub-Column B of Column II of the First Schedule to subsection (3), shall commence from the commencement of the year of assessment—

(a) in which the new undertaking referred to in subsection (1) commences to make profits from the transactions entered into in that year of assessment; or

(b) which occurs not later than three years reckoned from the commencement of the year of assessment in which such undertaking commences commercial operations,

whichever occurs earlier.

21. Exemption of profits and income of any relocated undertaking.

(1) The profits and income, within the meaning of paragraph (a) of section 3, (other than any profits and income from the sale of any capital asset) of any company, from any relocated undertaking referred to in subsection (2), shall be exempt from income tax for each year of assessment within the period of five years determined in accordance with subsection (3).

(2) For the purposes of subsection (1), a “relocated undertaking” in relation to any company and to any year of assessment referred to in subsection (1), means an undertaking—

(a) which prior to November 1, 2005, was being carried on by that company in a location within the administrative district of Colombo or of Gampaha, with not less than one hundred individuals employed therein;

(b) which is relocated in any location outside the administrative districts of Colombo and Gampaha and commencing from a date not later than March 31, 2010, continues—

(i) to carry its commercial operations; and

(ii) to employ such number of individuals as is not less than the number employed as at November 1, 2005,

throughout that year of assessment; and

[S 21(2)(b) am by s 12 of Act 9 of 2008 w.e.f. 1 April 2008; s 11 of Act 22 of 2011 w.e.f. 1 April 2009.]

(c) in respect of which the expenditure incurred in the relocation, is not less than one hundred million rupees.

(3) The period of five years referred to in subsection (1), shall commence from the commencement of the year of assessment in which the relocated undertaking commences commercial operations.

21A. Exemption of profits and income of undertakings relocated from certain districts.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of any capital asset) of any company, from any relocated undertaking referred to in subsection (2), shall be exempt from income tax for each year of assessment within a period of five years, commencing on April 1, 2009.

(2) For the purpose of subsection (1), a “relocated undertaking” in relation to any company and to any year of assessment referred to in subsection (1), means an undertaking—

(a) which prior to November 1, 2007, was being carried on by that company in any location within the administrative district of Colombo or Gampaha, with not less than one hundred individuals employed therein;

(b) which is relocated in any location outside the administrative district of Colombo and Gampaha and commencing from a date not later than March 31, 2010, continues to—

(i) carry on commercial operations; and

(ii) employ such number of individuals as is not less than the number employed as at November 1, 2007,

throughout that year of assessment;

[S 21A(2)(b) am by s 12 of Act 22 of 2011
w.e.f. 1 April 2009.]

(c) in respect of which the expenditure incurred in the relocation is not less than one hundred million rupees; and

(d) of which the profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of any capital asset) are exempt from income tax under any other provision of this Act or under any agreement entered into with the Board of Investment of Sri Lanka under section 17 of the Board of Investment of Sri Lanka Law, No. 4 of 1978, for a period extending beyond April 1, 2009.

[S 21A ins by s 13 of Act 9 of 2008 w.e.f. 1 April 2008.]

22. Exemption from income tax of any company engaged in research and development.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of capital assets) of any new undertaking of a company which is engaged solely in research and development, with an investment of not less than two million rupees made within one year from the commencement of such undertaking, but prior to April 1, 2014 shall be exempt from income tax for a period of five years, reckoned from the year of assessment in which the undertaking commences to make profits from transactions entered into in that year of assessment or from the commencement of the year of assessment immediately succeeding the year of assessment in which the undertaking completes a period of two years reckoned from the date on which the undertaking commences to carry on commercial operations, whichever occurs earlier:

[S 22(1) am by s 14 of Act 9 of 2008 w.e.f. 1 April 2008;
s 11 of Act 8 of 2014 w.e.f. 1 April 2014.]

Provided that where the period for which the profits and income are exempt from income tax commences after April 1, 2008, the period for which such profits and income are exempt, shall be three years.

[S 22(1) proviso ins by s 14 of Act 9 of 2008
w.e.f. 1 April 2008.]

(2) For the purpose subsection (1) “research and development” means any systematic or intensive study carried out in the field of science or technology with the object of using the results thereof for the production or improvement of materials, devices, products, produce or process (other than quality control of products or routine testing materials, devices, research in social science or humanities, routine data collection, efficiency surveys or management studies and market research or sales promotion).

23. Exemption from income tax of any venture capital company.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than profits and income from the sale of any capital asset within the meaning of paragraph (b) of subsection (7) of section 25) of any venture capital company, derived from any specified investment in any project referred to in paragraph (a), (b) or (c) hereafter, shall be exempt from income tax, for a period of five years commencing from the year of assessment in which the company commences to carry on commercial operations, where such company invests a sum of money as specified in subsection (2), which investment shall be identified as a specific investment, for the purchase of ordinary shares in a company engaged in—

(a) a project which is of a pioneering nature and the operation of which results in value addition and the promotion of economic development;

(b) a project which is engaged in the business of information technology;

(c) any other project as may be specified by the Minister by Order published in the Gazette,

and such investment shall be for the financing of seed capital or start up or early stage financing of the investee company:

[S 23(1) am by s 15(1)(a) of Act 9 of 2008
w.e.f. 1 April 2006.]

Provided however—

(i) the venture capital company shall not have commenced commercial operations prior to April 1, 2003; and

(ii) the specific investment shall not be made in relation to a company which is at the time of making the first investment, an associate company.

Provided further that, where the venture capital company commences commercial operations on or after April 1, 2008, the period for which the profits and income are exempt from income tax, be three years.

[S 23(1) second proviso ins by s 15(1)(b) of Act 9 of 2008 w.e.f. 1 April 2008.]

Provided further that where any venture capital company had not made any investment prior to April 1, 2011 for the purchase of ordinary shares in any project referred to in paragraph (a), (b) or (c) of this subsection, such company shall not be entitled to any tax exemption under this section.

[S 23(1) third proviso ins by s 13 of Act 22 of 2011
w.e.f. 1 April 2011.]

(2) In order to qualify for the tax exemption provided for in subsection (1), the venture capital company shall have invested a sum—

(a) not less than forty per centum of the total equity capital of such company, during the second year from the year in which such company commenced its commercial operations, on or before the end of that second year;

(b) not less than eighty per centum of the total equity capital of such company, during the third year from the year in which such company commenced its commercial operations, on or before the end of that third year;

(c) not less than eighty per centum of the total equity capital of such company, during the fourth and fifth years from the year of commencement of commercial operations, on or before the end of such fourth and fifth years respectively,

in any project specified in subsection (1):

Provided that if a company which has claimed exemption under this section fails to comply with the provisions of this subsection, or any dividends have been declared during the first two years from the year of assessment in which the company commences to carry on commercial operations or more than twenty per centum of the total specific investment made in any year has been made in one or more associate companies of such venture capital company, the exemption afforded to such company shall be withdrawn and the assessment shall be issued for the relevant years.

(3) Investment may be made in foreign companies, and such investments shall be considered as a specific investment for the purpose of this section in the second year and thereafter, where such investment is not more than ten per centum of equity capital of such company during the second year and not more than twenty per centum of equity capital of such company during the third year and subsequent years respectively, from the year in which such company commences its commercial operations.

(4) During the first three years including the year in which such company commences its commercial operations, any equity capital in excess of the minimum investments required by subsection (2) may be invested in Government Securities and such investment shall be considered as a specific investment.

(5) The year of commencement of commercial operations for the purpose of this section, shall be the year in which the issued equity capital of the venture capital company has reached one hundred million rupees and shall not apply in respect of commercial operations commencing on or after April 1, 2008.

(6) For the purposes of this section—

“associate company” means any company within a group of companies which includes a parent company and all its subsidiaries where the parent company has one or more subsidiaries and such subsidiaries are controlled by the parent company either by appointing a majority of the Board of Directors of such subsidiary or by holding more than one half in nominal value of the equity share capital of such subsidiary;

[“non-performing” rep by s 15(2) of Act 9 of 2008
w.e.f. 1 April 2008.]

[“under-performing” rep by s 15(2) of Act 9 of 2008
w.e.f. 1 April 2008.]

“venture capital company” means any company registered under the Companies Act, No. 7 of 2007 with a minimum issued share capital of rupees one hundred million and which is engaged in the business of providing equity investment in relation to any project as is specified in subsections (1), (2), (3) and (4), and—

[Am by s 11 of Act 8 of 2012 w.e.f. 1 April 2012.]

(a) which has entered into a Technical Service Agreement with a management company possessing the required experience in the relevant area of investment; or

(b) which has in its employment, professional staff who have been trained by foreign venture capital companies and other local staff possessing the required professional venture capital management experience.

24. Exemption from income tax of any person engaged in the business of providing Manor Houses or Thematic Bungalows to tourists.

(1) The profits and income within the meaning of paragraph (a) of section (3) (other than any profits and income from the sale of capital assets) of any person engaged in business as specified in subsection (2), shall be exempt from income tax for a period of three years commencing from the year of assessment in which such business commences to make profits from transactions entered into in that year of assessment or from the commencement of the year of assessment immediately succeeding the year of assessment in which such business completes a period of two years reckoned from the date on which the business commences to carry on commercial operations, whichever earlier.

[S 24(1) am by s 16(1) of Act 9 of 2008
w.e.f. 1 April 2008.]

(2) The provisions of subsection (1) shall apply in respect of any business of providing accommodation to tourists in Manor Houses or Thematic Bungalows, carried on by a person registered on or after April 1, 2003 with the Ceylon Tourist Board and for a period of ten years from the date of such registration.

[S 24(2) subs by s 16(2) of Act 9 of 2008
w.e.f. 1 April 2008.]

24A. Exemption from income tax of the profits and income from any new or upgraded cinema.

(1) The profits and income within the meaning of paragraph (a) of section 3, (other than any profits and income from the disposal of any capital asset) from the exhibition on or after April 1, 2007 of any cinematographic film in any new cinema or any upgraded cinema referred to in subsection (3), shall be exempt from income tax for a period of—

(a) ten years, where the cinema is a new cinema; or

(b) seven years, where the cinema is an upgraded cinema.

[S 24A(1)(b) am by s 8(1) of Act 19 of 2009
w.e.f. 1 April 2009.]

(2) The period of ten years or the period of seven years, as the case may be, referred to in subsection (1) shall, in relation to any cinema, commence from the commencement of the year of assessment in which the exhibition of cinematographic films in such new cinema or upgraded cinema, as the case may be, commenced.

[S 24A(2) am by s 8(2) of Act 19 of 2009
w.e.f. 1 April 2009.]

(3) For the purposes of this section—

(a) “new cinema” means a cinema—

(i) in which the exhibition of cinematographic films commences on or after April 1, 2007; and

(ii) which is certified by the National Film Corporation of Sri Lanka established by the National Film Corporation of Sri Lanka Act, No. 47 of 1971 as being equipped with digital technology and Digital Theatre Systems and Dolby Sound Systems; and

(b) “upgraded cinema” means a cinema—

(i) in which the exhibition of cinematographic films had commenced prior to April 1, 2007;

(ii) which was not equipped with digital technology and Digital Theatre Systems and Dolby Sound Systems prior to April 1, 2007; and

(iii) which is certified by the National Film Corporation of Sri Lanka, established by the National Film Corporation of Sri Lanka Act, No. 47 of 1971 as being equipped on or after April 1, 2007, with digital technology and Digital Theatre Systems and Dolby Sound Systems.

[S 24A ins by s 9 of Act 10 of 2007.]

24B. Exemption from income tax of the profits and income from the operation of any reopened abandoned factory.

(1) The profits and income within the meaning of paragraph (a) of section 3, (other than any profits from the disposal of any capital asset) of any person from the operation of any reopened abandoned factory referred to in subsection (2), shall be exempt from income tax for the period ending on March 31, 2011.

(2) For the purpose of subsection (1), “reopened abandoned factory” means a factory which—

(a) was engaged in the production or manufacture of any commodity or article but which had not been so engaged for an unbroken period of not less than three years, preceding November 16, 2006; and

(b) commences to produce or manufacture such commodity or article or any other commodity or article in commercial quantities before April 1, 2008.

[S 24B ins by s 9 of Act 10 of 2007.]

24C. Exemption from income tax of the profits and income of any new undertakings located within the Eastern Province.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the disposal of any capital asset) from the operation of any new undertaking referred to in subsection (2), shall be exempt from income tax for a period of five years commencing from the year of assessment in which such undertaking commences to make profits from transactions entered into in that year of assessment or from the commencement of the year of assessment immediately succeeding the year of assessment in which such undertaking completes two years reckoned from the date on which the undertaking commences to carry on commercial operations, whichever occurs earlier.

(2) For the purpose of subsection (1), “new undertaking” means an undertaking which—

(a) is not formed by the splitting up, reconstruction or the acquisition of an undertaking which was in existence before November 7, 2007;

(b) commences commercial operations on or after November 7, 2007; and

(c) is located within the Eastern Province, and the sum invested in the undertaking before April 1, 2010 (other than in land), is not less than thirty million rupees.

[S 24C ins by s 17 of Act 9 of 2008 w.e.f. 1 April 2008.]

24D. Exemption of the profits and income of any new undertaking located in any lagging region.

(1) The profits and income within the meaning of paragraph (a) of section 3 (other than any profits and income from the sale of any capital asset) of any new undertaking (other than any specified undertaking) located in any lagging region and referred to in subsection (2), shall be exempt from income tax for a period of five years commencing from the year of assessment in which such undertaking commences to make profits from transactions entered into in that year of assessment or from the commencement of the year of assessment immediately succeeding the year of assessment in which the undertaking completes two years reckoned from the date on which the undertaking commences to carry on commercial operations, whichever occurs earlier.

(2) For the purpose of subsection (1)—

“lagging region” in relation to any year of assessment means any Divisional Secretary’s Division determined by the Minister in consultation with any appropriate authority and specified by Order published in the Gazette as being in a state of economic backwardness in the year of assessment immediately preceding that year of assessment;

“new undertaking” means an undertaking—

(a) which commences commercial operations on or after April 1, 2008; and

(b) in which the sum invested in the acquisition of capital assets (other than land), after November 7, 2007 but before March 31, 2010, is not less than thirty million rupees; and

“specified undertaking” means an undertaking engaged in the sale of any article not produced or manufactured by such undertaking.

[S 24D ins by s 17 of Act 9 of 2008 w.e.f. 1 April 2008.]

CHAPTER IV

ASCERTAINMENT OF PROFITS OR INCOME

25. Deductions allowed in ascertaining profits and income.

(1) Subject to the provisions of subsections (2) and (4), there shall be deducted for the purpose of ascertaining the profits or income of any person from any source, all outgoings and expenses incurred by such person in the production thereof, including—

(a) an allowance for depreciation by wear and tear of the following assets acquired, constructed or assembled and arising out of their use by such person in any trade, business, profession or vocation carried on by him—

(i) information technology equipments and calculating equipment including accessories and software, acquired by such person, at the rate of twenty five per centum per annum on the cost of acquisition of such equipments, accessories and software, as the case may be;

(ii) any motor vehicle or furniture acquired by such person, at the rate of twenty per centum per annum, on the cost of acquisition;

(iii) any other machinery or equipment not referred to in sub-paragraphs (i) and (ii) above and any plant, other than any plant referred to in sub-paragraph (iv)—

(A) acquired or assembled prior to April 1, 2011 by such person, at the rate of twelve and one half per centum per annum; or

(B) acquired or assembled on or after April 1, 2011 by such person, at the rate of thirty three and one third per centum per annum,

on the cost of acquisition or assembly;

[S 25(1)(a)(iii) am by s 14(1)(a) of Act 22 of 2011
w.e.f. 1 April 2011.]

(iv) any bridge, railway track, reservoir, electricity or water distribution line and toll roads constructed by such person or acquired from a person who has constructed such assets, at the rate of six and two third per centum per annum, on the cost of construction or cost of acquisition, as the case may be;

(v) any qualified building constructed or any unit of a condominium property acquired and which is approved by the Urban Development Authority established by the Urban Development Authority Law, No. 41 of 1978 and constructed to be used as a commercial unit or any hotel building (including a hotel building complex) or any industrial building (including any industrial building complex) acquired from a person who had used such building in any trade or business—

(A) prior to April 1, 2015 at the rate of six and two third per centum per annum, on the cost of construction or cost of acquisition of such building or unit; or

(B) on or after April 1, 2015 at the rate of ten per centum per annum on the cost of construction or the cost of acquisition of such building or unit;

[S 25(1)(a)(v) subs by s 7 (1)(a) of Act 9 of 2015 w.e.f. 1 April 2015.]

(vi)...

[S 25(1)(a)(vi) rep by s 7 (1)(a) of Act 9 of 2015 w.e.f. 1 April 2015.]

Provided that—

(a) where any software acquired is software developed in Sri Lanka, the rate shall be one hundred per centum on the cost of acquisition;

(b) where—

(i) any plant or machinery acquired prior to April 1, 2011, is used in any business of providing health care, printing on paper, gem cutting and polishing, packaging of any commodity for commercial purposes, rice milling or such other business as may be prescribed by the Commissioner-General by Order published in the Gazette; or

[S 25(1)(a) proviso para (b)(i) am by s 14(1)(d)(i) of Act 22 of 2011 w.e.f. 1 April 2011.]

(ii) the asset consists of a ship acquired on or after April 1, 2007, but prior to April 1, 2011, being a ship which is owned by a company registered under Part XI of the Companies Act, No.7 of 2007 or is deemed to be a Sri Lanka ship by virtue of a determination made under paragraph (c) of section 30 of the Merchant Shipping Act, No. 52 of 1971,

[S 25(1)(a) proviso para (b)(ii) am by s 18(1)(a) of Act 9 of 2008 w.e.f. 1 April 2008; s 14(1)(d)(ii) of Act 22 of 2011 w.e.f. 1 April 2011.]

the rate shall be 33 1/3 per centum of the cost of acquisition;

[S 25(1)(a) proviso para (b) subs by s 10(1) of Act 10 of 2007.]

(c) where any plant or machinery is acquired on or after April 1, 2007 but prior to April 1, 2011 is used in any business of carrying out construction work, the rate shall be twenty five per centum of the cost of acquisition;

[S 25(1)(a) proviso para (c) ins by s 10(2) of Act 10 of 2007; am by s 12(1) of Act 8 of 2012 w.e.f. 1 April 2012.]

(d) where for energy efficiency purposes, any high tech plant, machinery or equipment is acquired on or after April 1, 2012, the rate shall be fifty per centum of the cost of acquisition:

[S 25(1)(a) proviso para (d) ins by s 12(2) of Act 8 of 2012 w.e.f. 1 April 2012; am by s 11(1) of Act 18 of 2013
w.e.f. 1 April 2013.]

Provided that where such high tech plant, machinery or equipment acquired on or after April 1, 2013 and used in any trade or business meets more than thirty per centum of the total requirement of the power generation of that trade or business out of alternative energy sources, the rate shall be one hundred per centum on the cost of acquisition;

For the purpose of this proviso “alternative energy source” means any source other than the National Grid, that generates power.

[S 25(1)(a) proviso para (d) proviso ins by s 11(1) of Act 18 of 2013 w.e.f. 1 April 2013.]

(e) where any plant or machinery or equipment is acquired and used in any business on or after April 1, 2013 for technology upgrading purposes or introducing any new technology, the rate shall be fifty per centum of the cost of acquisition;

[S 25(1)(a) proviso para (e) ins by s 11(2) of Act 18 of 2013 w.e.f. 1 April 2013.]

(f) where any plant, machinery or equipment is acquired and used on or after April 1, 2013 in any Stock Broker Company for the upgrading of information technology infrastructure to be in compliance with the requirements of the Colombo Stock Exchange licensed by the Securities and Exchange Commission, in relation to the Risk Management System, the rate shall be one hundred per centum of the cost of acquisition;

[S 25(1)(a) proviso para (f) ins by s 11(2) of Act 18 of 2013 w.e.f. 1 April 2013.]

(g) where any plant, machinery or equipment acquired and used on or after April 1, 2013, in any trade or business and where at least sixty per centum of the turnover of such trade or business is from export, the rate shall be fifty per centum of the cost of acquisition;

[S 25(1)(a) proviso para (g) ins by s 11(2) of Act 18 of 2013 w.e.f. 1 April 2013.]

(h) where any plant, machinery or equipment acquired and used on or after April 1, 2015, in any new undertaking commenced on or after April 1, 2015 for the manufacture of products for exports with an investment of not less than two million US Dollars or its equivalent in other currency and which is not formed by splitting up or re-construction of an existing undertaking, the rate of depreciation shall be hundred per centum of the cost of acquisition;

[S 25(1)(a) proviso para (h) ins by s 7(1)(b) of Act 9 of 2015 w.e.f. 1 April 2015.]

(b) —

(i) a sum equal to one fourth of any payment made by such person as consideration for obtaining a licence in his favour of any manufacturing process used by such person in any trade or business carried on by such person;

(ii) a sum equal to one tenth of the cost of acquisition of any intangible asset, other than goodwill, acquired by such person:

Provided that no deduction under the provisions of this paragraph shall be allowed to any person in respect of any such payment if the total of the sums deducted in the preceding years of assessment is equal to the amount of such payment;

(c) any sum expended by such person for the renewal of any capital asset employed by such person for producing such profits or income, if no allowance for the depreciation thereof is deductible in respect of that asset;

(d) any sum expended by such person for the repair (not renewal) of any plant, machinery, fixtures, building, implement, utensil or article employed for producing such profits and income:

Provided that, in the case of a company carrying on the business of letting premises, the sum deductible under this paragraph shall, in so far as such sum relates to the repairs of such premises, not exceed twenty five per centum of the gross rent receivable by such company for such premises;

(e) for the year of assessment commencing on April 1, 2006, a sum equal to the bad debts incurred by such person in any trade, business, profession, vocation or employment which have become bad debts during the period for which the profits are being ascertained, and such sum as the Commissioner-General considers reasonable for doubtful debts to the extent that they are estimated to have become bad during the period, notwithstanding that such bad or doubtful debts were due and payable prior to the commencement of that period:

[S 25(1)(e) am by s 10(3) of Act 10 of 2007.]

Provided that all sums recovered during that period on account of the amounts previously written off or allowed in respect of bad or doubtful debts shall for the purposes of this Act, be treated as receipts of that period of that trade, business, profession, vocation or employment and for the purpose of this proviso, sums recovered shall be deemed to include any reductions as at the last date of such period in any estimated amount of a doubtful debt previously allowed as a deduction;

(ee) for any year of assessment commencing on or after April 1, 2007, a sum equal to the bad debts incurred by such person in any trade, business, profession, vocation or employment which have become bad debts during the period for which the profits are being ascertained:

Provided that, all sums recovered during such period on account of the amounts previously written off or allowed in respect of bad debts shall, for the purposes of this Act, be treated as receipts of that trade, business, profession, vocation or employment, for such period;

[S 25(1)(ee) ins by s 10(4) of Act 10 of 2007.]

(eee) for any year of assessment commencing on or after April 1, 2007, where such person is a bank or a financial institution, such sum as the Commissioner-General considers reasonable for doubtful debts, to the extent that they are estimated to have become bad during the period for which the profits are being ascertained, and notwithstanding that such debts were due and payable prior to the commencement of that period:

Provided that—

(i) such sum so considered reasonable shall not exceed one per centum of the aggregate debts outstanding at the end of that period;

(ii) where the doubtful debts estimated by such person as having become bad during the period for which the profits are being ascertained exceeds the sum deducted under this paragraph, the excess shall be deemed to be doubtful debts estimated by such person as having become bad during the period immediately succeeding the period hereinbefore referred to; and

(iii) where the estimated amount of any doubtful debt previously allowed as a deduction has been reduced or such amount or any part thereof has been paid during such period, the sum by which such amount has been so reduced or the sum so paid shall for the purposes of this Act, be treated as a receipt of such bank or financial institution for that period.

For the purposes of this paragraph, “financial institution” shall have the same meaning as given for that expression in section 147;

[S 25(1)(eee) ins by s 10(4) of Act 10 of 2007.]

(eeee) for any year of assessment commencing on or after April 1, 2007, where such person is not a bank or a financial institution, such sum as the Commissioner-General considers reasonable for doubtful debts, to the extent that they are estimated to have become bad during the period for which the profits are being ascertained:

Provided that, where the estimated amount of any doubtful debt previously allowed as a deduction has been reduced or such amount or any part thereof has been paid during such period, the sum by which such amount has been so reduced or the sum so paid shall, for the purposes of this Act, be treated as a receipt of such person for such period.

For the purposes of this paragraph “financial institution” shall have the same meaning as given for that expression in section 147;

[S 25(1)(eeee) ins by s 10(4) of Act 10 of 2007.]

(f) interest paid or payable by such person;

(g) any contribution by an employer to a pension, provident or savings fund or to a provident or savings society, which is approved by the Commissioner-General subject to such conditions as he may specify;

(h) tax payable under any Statute enacted by a Provincial Council which such person is liable to pay for the period for which the profits and income are being ascertained in respect of any trade, business, profession or vocation carried on or exercised by him:

[S 25(1)(h) provisos rep by s 10(5) of Act 10 of 2007
w.e.f. 1 April 2006.]

(i) for any year of assessment—

(i) commencing prior to April 1, 2011, the expenditure including capital expenditure; or

(ii) commencing on or after April 1, 2011, an amount equal to two hundred per centum of the expenditure,

including capital expenditure, incurred by such person in carrying on any scientific, industrial, agricultural or any other research for the upgrading of any trade or business carried on by such person:

[S 25(1)(i) am by s 14(2) of Act 22 of 2011 w.e.f. 1 April 2011; s 12(3) of Act 8 of 2012 w.e.f. 1 April 2012.]

Provided that—

(A) where such expenditure is incurred on or after April 1, 2012 but prior to April 1, 2013 and such research is carried out through any Government institution;

(B) where such expenditure is incurred on or after April 1, 2013 and such research is carried out through any institution in Sri Lanka,

(C) where such expenditure on research is incurred on or after April 1, 2015, for any innovation or research relating to high value agricultural products and such research is carried out by such person himself or through any research institution, in Sri Lanka,

[S 25(1)(i) proviso (C) ins by s 7(1)(d) of Act 9 of 2015 w.e.f. 1 April 2015.]

the deduction shall be an amount equal to three hundred per centum of such expenditure incurred by such person

[S 25(1)(i) proviso subs by s 11(3) of Act 18 of 2013
w.e.f. 1 April 2013.]

For the purposes of this paragraph—

(i) “Government institution” includes any company, where fifty per centum or more of the shares are held by the Government; and

(ii) “scientific, industrial, agricultural or any other research” means any such research which is carried out for product or produce innovation, or improving the quality or character of any product, produce or service but does not include any market research or feasibility studies.

[Para ins by s 12(3) of Act 8 of 2012 w.e.f. 1 April 2012.]

For the purpose of this paragraph the Commissioner-General shall issue guidelines in order to ensure the uniform application of deduction;

[Para ins by s 7(1)(e) of Act 9 of 2015 w.e.f. 1 April 2015.]

(j) any expenses incurred by such person in—

(i) opening up any land for cultivation or for animal husbandry;

(ii) cultivating such land with plants of whatever description;

(iii) the purchase of livestock or poultry to be reared on such land; or

(iv) the construction of tanks or ponds or the clearing or preparation of any inland waters for the rearing of fish and the purchase of fish to be reared in such tank, pond or inland waters, as the case may be;

(k) the actual expenses incurred by such person or any other person in his employment in travelling within Sri Lanka in connection with the trade, business, profession or vocation of the first-mentioned person:

Provided that no deduction under the preceding provisions of this paragraph shall be allowed to any person—

(i) in respect of expenses incurred in relation to a vehicle used partly for the purposes of his trade, business, profession or vocation and partly for the domestic or private purposes of an executive officer being employed by him or a non-executive director of such organisation, unless the value of the benefit as specified under the proviso to paragraph (b) of subsection (2) of section 4 of this Act, has been included in the remuneration of such officer, for the purposes of deduction of income tax under Chapter XIV of this Act, where such benefit is not exempt under paragraph (s) of subsection (1) of section 8 of this Act;

[S 25(1)(k) proviso para (i) am by s 12(4) of Act 8 of 2012 w.e.f. 1 April 2012.]

(ii) in respect of expenses incurred in relation to a vehicle, where more than one vehicle is provided to any employee of such person or to any non-executive director or to any other individual who is not an employee but rendering services in the trade, business profession or vocation carried on by such person, if such vehicle is not the first vehicle provided to such employee or non-executive director or such other individual, as the case may be;

(iii) in respect of expenses incurred in relation to a vehicle where such vehicle is provided to any other person who is not an employee of such person and who does not render any services to the trade, business, profession or vocation carried on by such person;

(iv) in respect of expenses incurred in relation to the reimbursement of any expenditure on a vehicle belonging to an employee of such person who has been allowed by the employer to claim such expenses, unless the value of benefit of using such vehicle for non-business purposes by such employee as determined by the Commissioner-General, has been included in the remuneration of such employee for the purposes of deduction of income tax under Chapter XIV of this Act where such benefit is not exempt under paragraph (s) of subsection (1) of section 8 of this Act, or in the opinion of the Commissioner-General such amount that is reimbursed represents only expenses on allowable travelling expenses in relation to the trade, business, profession or vocation carried on by such employer; and

[S 25(1)(k) proviso para (iv) am by s 10(6)(a) of Act 10 of 2007 w.e.f. 1 April 2006; s 7(1)(f) of Act 9 of 2015 w.e.f. 1 April 2015.]

(v) in respect of any expenses incurred by such person by reason of any travelling done by any other person in his employment between the residence of such other person and his place of employment or vice versa.

[S 25(1)(k) proviso para (v) am by s 10(6)(b) of Act 10 of 2007 w.e.f. 1 April 2006; s 18(1)(b) of Act 9 of 2008
w.e.f. 1 April 2008.]

(l) in the case of a company, expenditure incurred in the formation or liquidation of that company;

(m) the expenditure incurred by such person in operating a motor coach used for transporting employees of such person to and from their place of work;

(n) the expenditure incurred by such person in the payment of gratuity to an employee on the termination of employment of such employee, due to cessation of the trade, business, profession or vocation carried on by such person;

(o) any annual payment made by such person to any fund, approved for the purposes of this paragraph by the Commissioner-General and maintained for the purposes of payment under the Payment of Gratuity Act, No.12 of 1983, of gratuities to employees on the termination of their services;

(p) such part of the lump sum payment which not being an advance payment made by such person to any other person in connection with the letting or lease, to the first-mentioned person, of any commercial premises, as bears to the total lump sum payment the same proportion as the number of months in the year for which lease rent is payable bears to the total number of months comprised in the lease;

(q) expenditure incurred by any person in the training, in any recognized institution of any employee employed by such person in any trade or business carried on by such person, if it is proved to the satisfaction of the Commissioner-General that such training is—

(i) directly relevant to the duties performed by such employee before the commencement of such training;

(ii) essential for upgrading the skills or performance of such employee, in such trade or business; and

(iii) necessary for improving the efficiency and performance of such trade or business.

For the purpose of this paragraph—

“training” includes participation in any seminar or workshop;

“employee” includes any partner of any partnership carrying on a profession.

(r) the accreditation expenses, where such person is a person carrying on any profession;

[S 25(1)(r) ins by s 10(7) of Act 10 of 2007; am by s 14(3) of Act 22 of 2011 w.e.f. 1 April 2011.]

(s) any expenditure incurred in any year of assessment in quoting any shares of a company in any official list of any stock exchange licensed by the Securities and Exchange Commission of Sri Lanka, provided that the aggregate of such expenditure incurred in that year of assessment and in any previous year of assessment shall not exceed one per centum of the value of the Initial Public Offering of such company;

[S 25(1)(s) ins by s 14(4) of Act 22 of 2011 w.e.f. 1 April 2011; am by s 12(5) of Act 8 of 2012 w.e.f. 1 April 2012.]

(t) any expenditure incurred by any person in the maintenance or management of any sports ground, stadium or sports complex.

[S 25(1)(t) ins by s 12(6) of Act 8 of 2012
w.e.f. 1 April 2012.]

(u) any sum paid by a Public Corporation or Government Owned Business Undertaking as a special levy, to the Government;

[S 25(1)(u) ins by s 11(4) of Act 18 of 2013 w.e.f. 1 April 2013; am by s 12(1) of Act 8 of 2014 w.e.f. 1 April 2014.]

(v) the cost of acquisition of any internationally recognized intellectual property used for producing such profits and income;

[S 25(1)(v) ins by s 12(2) of Act 8 of 2014
w.e.f. 1 April 2014.]

(w) for any year of assessment commencing on or after April 1, 2014 any royalty or ground rent payable for the relevant year of assessment and paid by such person if such amount was not allowed to be deducted prior to April 1, 2014, under paragraph (a) of subsection (5) of section 32;

[S 25(1)(w) subs by s 7(1)(g) of Act 9 of 2015 w.e.f. 1 April 2015.]

(x) for any year of assessment commencing on or after April 1, 2015, an amount equal to three hundred per centum of the expenditure incurred by any person registered with the Tertiary and Vocational Education Commission established under the Tertiary and Vocational Educational Act, No. 20 of 1990 on standard skill development training by any institution recommended by such Commission to be provided to trainees;

[S 25(1)(x) ins by s 7(1)(g) of Act 9 of 2015 w.e.f. 1 April 2015.]

(y) for any year of assessment commencing on or after April 1, 2015, an amount equal to three hundred per centum of the expenditure incurred by any person for brand promotion for the export of products manufactured by such persons.

[S 25(1)(y) ins by s 7(1)(g) of Act 9 of 2015 w.e.f. 1 April 2015.]

For the purpose of this paragraph “brand promotion” means, creating an internationally recognized brand name for a local value added product or produce.

(2) Where any person is entitled to a deduction in respect of any outgoing or expense under two or more paragraphs of subsection (1) in ascertaining the profits and income of such person from any source, such person shall be allowed a deduction only under one such paragraph.

[S 25(2) am by s 18(2) of Act 9 of 2008
w.e.f. 1 April 2008.]

(3) —

(a) Where any person disposes of any capital asset used by him in producing the profits and income of any trade, business, profession or vocation and a total amount equal to the cost of acquisition or the cost of construction, as the case may be, of such capital asset has been granted as allowance for depreciation of such capital asset, the full amount of the proceeds of such disposal, whether such disposal takes place while such trade, business, profession or vocation continues or on or after its cessation, shall be treated as a receipt of such trade, business, profession or vocation in ascertaining the profits and income within the meaning of paragraph (a) of section 3.

(b) Where any person disposes of any capital asset used by him in producing the profits and income of any trade, business, profession or vocation carried on or exercised by him and an allowance for depreciation has been granted in respect of that capital asset but the total amount of such allowance is less than the cost of acquisition or the cost of construction, as the case may be, of such capital asset, the excess of the proceeds of such disposal over the difference between the cost of acquisition or the cost of construction of such capital asset, and the total allowance for depreciation granted in respect of such capital asset, shall, whether such disposal takes place while such trade, business, profession or vocation continues or after its cessation, be treated as a receipt of such trade, business, profession or vocation, in ascertaining the profits and income of such trade, business, profession or vocation, within the meaning of paragraph (a) of section 3:

Provided that where such difference exceeds the proceeds of such disposal, the excess shall be treated for the purposes of subsection (1), as an expense incurred in the production of income:

Provided further that nothing in paragraph (a) or (b) shall apply to—

[S 25(3)(b) further proviso am by s 9 of Act 19 of 2009 w.e.f. 1 April 2009.]

(i) the transfer of any such capital asset to a company formed by the conversion of a business carried on by an individual either solely or in partnership;

(ii) the disposal by any person of any such capital asset, if the full proceeds of disposal are used by such person, within one year of the disposal for the replacement of such capital asset to be used by him for producing income in any trade, business, profession or vocation carried on or exercised by him; or

[S 25(3)(b) further proviso para (ii) am by s 18(3) of Act 9 of 2008 w.e.f. 1 April 2008.]

(c) Where a person carrying on any undertaking, the profit and income of which are wholly or partly exempt from income tax under this Act, disposes of any capital asset used for the purposes of that undertaking, such person shall be liable to income tax on an amount equal to the amount ascertained under paragraph (a) or paragraph (b).

(4) Subject to as hereinafter provided, income arising from interest shall be the full amount of interest falling due, whether received or not, without any deduction for outgoing or expenses:

Provided that—

(a) where it appears to an Assessor or Assistant Commissioner that any interest is unpaid and cannot be recovered, any assessment which includes such interest shall, notwithstanding the provisions of section 171, be reduced by the amount of the interest included which has been shown to be unpaid and irrecoverable or, if income tax has been paid in respect of such interest, such tax may be refunded on a claim in writing made within three years of the end of the year of assessment in respect of which such tax was paid;

[S 25(4) proviso para (a) am by s 2(5) of Act 8 of 2014 w.e.f. 1 April 2014.]

(b) where any interest falling due in any year of assessment in respect of a loan has not been received and is likely to be irrecoverable, the person to whom such interest is due may exclude such interest from the profits and income chargeable with income tax for that year of assessment;

(c) where it appears to an Assessor or Assistant Commissioner that any interest which has been excluded from an assessment under paragraph (b) has subsequently been received and that income tax has not been paid in respect of such interest, he shall, notwithstanding anything in subsection (5) of section 163 limiting the period within which an assessment or additional assessment may be made, make an assessment or additional assessment including such interest.

(5) No deduction under paragraph (a) or paragraph (b) or paragraph (c), or paragraph (d) of subsection (1) in respect of any capital asset, shall be allowed to any person if—

(a) such person has let on hire such capital asset—

(i) to any undertaking the whole or any part of the profits and income within the meaning of paragraph (a) of section 3, of which are exempt from income tax; or

(ii) for the use in any undertaking carried on by the person from whom it was acquired or by any member of the family of that person or any member of his family in partnership with any other person or persons; or

(b) such person uses such capital asset in any undertaking carried on by him in partnership with the person from whom it was acquired or with any member of the family of the person from whom it was acquired:

Provided that the provisions of sub-paragraph (i) of paragraph (a) shall not apply in respect of any capital asset let on hire by any person, if such person is a company engaged in the business of letting capital assets on hire.

For the purpose of this subsection “person” includes a partnership.

[Para ins by s 7(2) of Act 9 of 2015 w.e.f. 1 April 2015.]

(6) The profits and income received by one spouse for services rendered in any trade, business, profession or vocation carried on or exercised—

(a) by the other spouse; or

(b) by a partnership of which that other spouse is a partner,

shall be deemed to be the profits and income of that other spouse.

(7) For the purpose of this section—

(a) “allowance for depreciation”, in relation to any capital asset, means any allowance which is deductible in respect of that asset under—

(i) paragraph (a) of subsection (1) of this section;

(ii) paragraphs (a), (b), (bb) or (d) of subsection (1) of section 23 of the Inland Revenue Act; No. 38 of 2000; or

(iii) paragraphs (a), (b), (c), (d), (e), (ee), (eee) or (eeeee) of subsection (1) of section 23 of the Inland Revenue Act, No. 28 of 1979;

(b) “capital asset” in relation to a trade, business, profession or vocation means any plant, machinery, fixture, fitting, utensils, articles or equipment, including computer software or intangible assets other than goodwill, used for the purpose of producing the income in such trade, business, profession or vocation or building constructed for the purposes of such trade, business, profession or vocation;

[S 25(7)(b) am by s 7(3)(a) of Act 9 of 2015 w.e.f. 1 April 2015.]

(c) “proceeds” in relation to the disposal of any capital asset means—

(i) the sale price of such asset, where the disposal is by sale; or

(ii) the market value of such asset at the time of disposal, where the disposal is otherwise than by sale,

after deducting from such sale price or market value, as the case may be, the amount of value added tax chargeable under the Value Added Tax Act, No. 14 of 2002, on the disposal of such capital asset, if such tax is included in such sale price or market value, as the case may be;

(d) “disposal”, in relation to the disposal of any capital asset by any person includes—

(i) sale, exchange, or other transfer in any manner whatsoever of such asset by such person;

(ii) discard of such asset by such person;

(iii) cessation of the use of such asset by such person in any undertaking carried on by him in ascertaining the profits and income of which, an allowance for depreciation could be deducted;

(e) “qualified building” means a building constructed to be used for the purpose of a trade, business, profession or vocation, other than to be used as a dwelling house by an executive officer employed in that trade, business, profession or vocation;

(f) —

(i) where any capital asset which is used in any trade, business, profession or vocation carried on or exercised by any person and in respect of which an allowance for depreciation has been granted is sold, and the full proceeds of sale used within one year of the sale for the acquisition of another capital asset to replace the capital asset so sold, and to be used in such trade, business, profession or vocation, the cost of acquisition of such other capital asset shall be deemed to be the difference between the actual cost of acquisition of such other capital asset and the profits from the sale of the capital asset sold.

For the purposes of this sub-paragraph the profits from the sale, in relation to any capital asset, shall be the excess of the proceeds of sale of such asset over the difference between—

(A) the cost of acquisition or the cost of construction, as the case may be, of such asset; and

(B) the total allowance for depreciation granted in respect of such capital asset;

(ii) where any plant, machinery or fixtures is acquired otherwise than by way of purchase by any person to be used in any trade, business, profession or vocation carried on or exercised by him, the cost of acquisition of such plant, machinery or fixtures shall be the market value of such plant, machinery or fixtures on the date of such acquisition;

(iii) where a company is incorporated (hereinafter referred to as the “first mentioned company”) to—

(a) take over the business (including the capital assets) carried on by an individual either solely or in partnership with others, and acquires the capital assets of such business being carried on by such individual or partnership; or

(b) segregate the business of long term insurance and general insurance as separate businesses as required in terms of Regulation of Insurance Industry (Amendment) Act, No. 3 of 2011 or to consolidate, acquire or merge of any bank, financial institution or leasing company under the guidance of the Central Bank of Sri Lanka subject to conditions specified in the Guidelines issued by the Commissioner General where such businesses are carried out separately prior to such segregation, consolidation, acquisition or merger, by each such company (hereinafter referred to as the “second mentioned company”),

the cost of acquisition of each capital asset by the first mentioned company shall be deemed to be the cost of acquisition of such capital asset by such individual or partnership or the second mentioned company, reduced by the amount of any allowance for depreciation granted in respect of such asset to such individual or partnership or second mentioned company, and the date of acquisition of such capital assets by the first mentioned company, shall be deemed to be the date of acquisition of such capital asset by such individual, partnership or second mentioned company;

[S 25(7)(f)(iii) subs by s 7(3)(b) of Act 9 of 2015 w.e.f. 1 April 2015.]

(iv) where any person is entitled under the Value Added Tax Act, No. 14 of 2002, to claim credit for input tax paid in relation to the acquisition or the construction of any capital asset, the cost of acquisition or the cost of construction, as the case may be, of such capital asset shall not include such input tax.

(v) where any asset used in the business of leasing as part of the leasing stock is disposed of either by transferring such assets out of the leasing stock or by transferring such asset to the lessee of such asset, the market value as at the time of such transfer of such asset shall be deemed to be a receipt from such trade or business of the lessor, unless such lessor proves to the satisfaction of the Assessor or Assistant Commissioner that all sums due from the lessee under the agreement relating to such lease have been treated as taxable receipts, in computing profits or income from such business;

(vi) where any person has obtained an asset under a lease agreement and the relevant lease rentals have been allowed to such person as expenditure incurred in any trade, business profession or vocation, either fully or partly, the proceeds of disposal of such assets, less any cost of acquisition other than lease rental paid on such assets by such person acquiring it directly or through a nominee, shall be treated as a receipt from such trade, business, profession or vocation of such lessee;

[S 25(7)(f)(vi) am by s 18(4) of Act 9 of 2008
w.e.f. 1 April 2008.]

(vii) where any lessee has acquired any asset used by him in any trade, business, profession or vocation, upon the termination of a lease agreement, such acquisition shall not be considered as an acquisition which qualifies for any depreciation allowance under this section, and such asset shall be treated as an asset on which depreciation has been granted to such lessee to the extent of the repayment of the capital value of such asset under such lease agreement by such lessee.

26. Deductions not allowed in ascertaining profits and income.

(1) For the purpose of ascertaining the profits or income of any person from any source, no deduction shall be allowed in respect of—

(a) domestic or private expenses, including the cost of travelling between the residence of such person and his place of business or employment;

(b) expenses incurred in connection with his employment, other than the expenses referred to in paragraph (e) and paragraph (g) of subsection (l) of section 25;

(c) any expenditure incurred in travelling outside Sri Lanka in connection with any trade, business, not being a business referred to in paragraph (d), profession or vocation carried on or exercised in Sri Lanka by such person, other than the expenses incurred in travelling outside Sri Lanka, solely in connection with the—

(i) promotion of the export trade of any article or goods; or

(ii) provisions of any services for payment in foreign currency; or

[S 26(1)(c)(ii) am by s 15(1) of Act 22 of 2011 w.e.f. 1 April 2011; s 13(1) of Act 8 of 2012 w.e.f. 1 April 2012.]

(iii) services relating to design development, product development or product innovation by such person being a company engaged exclusively in the provision of such services:

[S 26(1)(c)(iii) ins by s 13(1) of Act 8 of 2012
w.e.f. 1 April 2012.]

Provided that for any year of assessment commencing on or after April 1, 2011—

(A) such part of expenditure incurred in travelling outside Sri Lanka in the production of profits or income from any trade or business carried on or exercised in Sri Lanka by any person, after deducting therefrom—

(i) such expenses incurred in travelling outside Sri Lanka solely in connection with the promotion of export trade of any article or goods or the provision of any service for payment in foreign currency; or

(ii) such expenditure incurred in travelling outside Sri Lanka in carrying out an approved programme as referred to in paragraph (d); or

(iii) for any year of assessment commencing on or after April 1, 2012, such expenditure incurred in travelling outside Sri Lanka, by any company engaged exclusively in the provision of services relating to design development, product development or product innovation;

(B) an amount equal to two per centum of the profits and income of such trade or business in the immediately preceding year of assessment,

whichever is lower, shall be deductible in ascertaining the profits and income from such trade or business for that year of assessment;

[Proviso ins by s 13(1) of Act 8 of 2012
w.e.f. 1 April 2012.]

(d) any expenditure incurred in travelling outside Sri Lanka in connection with the business of any undertaking of operating any hotel for tourists, carried on by such person, other than the expenditure incurred in travelling outside Sri Lanka solely in carrying out a programme approved by the Ceylon Tourist Board for the promotion of tourism;

(e) entertainment expenses incurred by such person or his employee or on his behalf in connection with any trade, business, profession or vocation carried on or exercised by him;

(f) entertainment allowances paid by such person to his executive officer;

(g) any disbursements or expenses of such person, not being money expended for the purpose of producing such profits or income;

(h) any expenditure of a capital nature or any loss of capital incurred by such person;

(i) the cost of any improvements effected by such person;

(j) any sum recoverable under a contract of insurance or indemnity, if the amount received under such contract is not treated as a receipt from such trade, business, profession or vocation under section 89 of the Inland Revenue Act, No. 28 of 1979 or under section 95 of the Inland Revenue Act, No. 38 of 2000 or section 100 of this Act;

(k) rent of, or expenses in connection with, any premises or part of a premises not occupied or used for the purposes of producing such profits and income;

(l) any amount paid or payable by such person by way of—

(i) income tax, or super tax or surtax or any other tax of a similar character in any country with which an agreement made by the Government of Sri Lanka for the avoidance of double taxation is in force (other than the excess of any such income tax, or super tax or surtax or any other tax of a similar character over such maximum amount of the credit in respect of Sri Lanka income tax as is allowed by paragraph (c) of subsection (1) of section 97,; or

[S 26(1)(l)(i) am by s 11(1)(a)(i) of Act 10 of 2007.]

(ii) Sri Lanka income tax; or

(iii) any prescribed tax or levy; or

[S 26(1)(l)(iii) am by s 11(1)(a)(ii) of Act 10 of 2007.]

(iv) any Economic Service Charge levied under Economic Service Charge Act, No. 13 of 2006; or

[S 26(1)(l)(iv) am by s 11(1)(a)(iii) of Act 10 of 2007.]

(v) any Value Added Tax on Financial Services levied under Chapter IIIA of the Value Added Tax Act, No. 14 of 2002 and any Nation Building Tax on Financial Services within the provisions of the Nation Building Tax Act, No. 9 of 2009; or

[S 26(1)(l)(v) am by s 11(1)(a)(iv) of Act 10 of 2007; s 8(1)(a) of Act 9 of 2015 w.e.f.1 April 2015.]

(vi) any Social Responsibility Levy levied under item 4 of the First Schedule to the Finance Act, No. 5 of 2005; or

[S 26(1)(l)(vi) am by s 11(1)(a)(v) of Act 10 of 2007; am by s 13(1)(a) of Act 8 of 2014 w.e.f. 1 April 2014.]

(vii) any Crop Insurance Levy levied under section 14 of PART IV of the Finance Act, No. 12 of 2013; or

[S 26(1)(l)(vii) ins by s 13(1)(b) of Act 8 of 2014
w.e.f. 1 April 2014; am by s 8(1)(b) of Act 9 of 2015
w.e.f. 1 April 2015.]

(viii) Super Gain Tax, Bars and Taverns Levy, Casino Industry Levy, Mobile Telephone Operator Levy, Satellite Location Levy, Dedicated Sports Channel Levy and Mansion Tax imposed and levied under the provisions of the Finance Act, No. 10 of 2015,

[S 26(1)(l)(viii) ins by s 8(1)(c) of Act 9 of 2015 w.e.f. 1 April 2015.]

any regulation prescribing a tax or levy for the purpose of this paragraph may be declared to take effect from a date earlier than the date on which such regulation is made;

(m) any ground rent or royalty payable for any period prior to April 1, 2014 and paid after April 1, 2014 which is deductible under paragraph (a) of subsection (5) of section 32 or annuity paid by such person;

[S 26(1)(m) subs by s 8(2) of Act 9 of 2015
w.e.f. 1 April 2015.]

(n) any payment by such person to any pension, provident, savings, widows’ and orphans’ pension, or other society or fund, except such payments as are allowed under paragraph (g) of subsection (l) of section 25;

(o) —

(i) one half of the excess of any expenditure in relation to any employee where profits from employment under paragraph (a) of subsection (1) of section 4, does not exceed six hundred thousand rupees per year; and

(ii) three fourths of the excess of any expenditure in relation to any employee whose profits from employment under paragraph (a) of subsection (1) of section 4 exceeds six hundred thousand rupees per year,

incurred by such person in providing any place of residence to any employee of such person or to the spouse, child or parent of such employee over the rental value of such place of residence which is included in the profits from employment of such employee within the meaning of section 4.

For the purposes of this paragraph “expenditure” shall include rent, lease rent, rates, repairs and maintenance or other expenses directly and specifically related to such place of residence borne by the employer;

(p) such part of the rental paid by him under any finance leasing agreement entered into by him in respect of—

(i) any motor vehicle, furniture, plant, machinery or equipment other than information technology equipment and calculating equipment including accessories and computer software and other computing or calculating machine referred to in paragraph (a) of subsection (l) of section 25, as is in excess of one-fifth of the total rental payable under such agreement; and

(ii) any information technology equipment and calculating equipment including accessories and computer software as referred to in paragraph (a) of subsection (l) of section 25, as is in excess of one-fourth of the total rental payable under such agreement;

(q) any sum transferred to any reserve or provision (other than any annual payment referred to in paragraph (o) of subsection (1) of section 25, for the payment of any sum referred to in subsection (2) of section 35;

(r) such part of any sum paid or payable by such person, not being any venture capital company, any unit trust or any mutual fund, as consideration for the management of any trade, business, profession or vocation carried on or exercised by him, as exceeds—

(i) two million rupees or one per centum of the turnover of such trade, business, profession or vocation during the period for which profits and income are being ascertained, whichever is lower or;

[S 26(1)(r)(i) am by s 15(2) of Act 22 of 2011
w.e.f. 1 April 2011.]

(ii) such amount as may be determined by the Commissioner-General having regard to all the circumstances of the case, as being reasonable and commercially justifiable as such consideration,

whichever is higher.

For the purposes of this paragraph, the term “turnover” in relation to any trade, business, profession or vocation and to any period, means the total amount received or receivable from transactions entered into or for services performed in that period, in carrying on or exercising such trade, business, profession or vocation, excluding any amount received or receivable from the sale of capital assets;

(s) any expenditure or outgoing in relation to any asset provided by such person to any employee to be used in the residence of such employee;

(t) any expenditure or outgoing in relation to any movable or immovable property given by such person to any employee at a price, less than market value at the time of giving such property;

(u) any expenditure or outgoing in relation to any loan, other advance or credit granted to any employee which is subsequently written off as a bad debt by such person;

For the purposes of paragraphs (s), (t) and (u), of this subsection, the term “employee” shall have the same meaning as given to such term in section 131 of this Act;

[Para ins by s 19(1) of Act 9 of 2008 w.e.f. 1 April 2006.]

(v) for year of assessment—

(i) commencing prior the April 1, 2011, one half; and

(ii) commencing on or after April 1, 2011, one fourth,

of such person’s cost of advertisement in connection with any trade, business, profession or vocation carried on or exercised by him other than the cost of advertisement incurred on or after August 1, 2012, on sponsorship of international sport events approved by the Minister to whom the subject of Sports has been assigned; or the cost of advertisement outside Sri Lanka incurred solely in connection with the export trade of any article or goods or the provisions of any services for payment in foreign currency;

[S 26(1)(v) am by s 15(3) of Act 22 of 2011 w.e.f. 1 April 2011; s 12 of Act 18 of 2013 w.e.f. 1 April 2013.]

(w) any expenditure incurred in any trade or business carried on in Sri Lanka by any non-resident company being expenditure in the nature of head office expenditure, incurred in any period by reference to the profits and income of which the statutory income from such trade or business is computed.

For the purpose of this paragraph, the expression “head office expenditure” shall have the same meaning as given in section 27 of this Act;

(x) the excess, if any, of the aggregate amount of the interest payable for any year of assessment by any subsidiary company (hereinafter referred to as the first mentioned subsidiary company) of any holding company, in respect of any loan obtained from such holding company or any other subsidiary company or subsidiary companies (hereinafter referred to as the second mentioned subsidiary company or subsidiary companies), over such part of the interest so payable, as is attributable to such part of such loan, as is equal to thrice the aggregate of the issued share capital and reserves at the end of that year of assessment of the first mentioned subsidiary company, where such first mentioned subsidiary company is a manufacturer:

Provided that where such first mentioned subsidiary company is not a manufacturer the provisions of the preceding paragraph shall apply as if for the reference in that paragraph to the words “thrice the aggregate of the issued share capital and reserves”, there were substituted a reference to the words “four times the aggregate of the issued share capital and reserves”.

In this paragraph—

(i) the expressions “subsidiary company” and “holding company” shall have the same respective meanings assigned to them in the Companies Act, No. 7 of 2007;

[S 26(1)(x)(i) am by s 13(2) of Act 8 of 2012
w.e.f. 1 April 2012.]

(ii) the first mentioned subsidiary company shall, in relation to any year of assessment, be deemed to be “a manufacturer”, if more than fifty per centum of the turnover for that year of assessment of such subsidiary company, is from the sale of products manufactured by such subsidiary company;

(iii) “reserves” do not include reserves arising from the revaluation of any asset; and

(iv) “turnover” in relation to any year of assessment of a subsidiary company, means the total amount receivable, whether actually received or not, from every sale made in that year of assessment, of products manufactured by such subsidiary company—

(A) after deducting therefrom—

(i) any sum included in such total amount, being the proceeds from the disposal of any capital asset;

(ii) the amount of any bad debt incurred during that year of assessment, being an amount which had been included in the relevant turnover of such company for that or any previous year of assessment; and

(iii) any sum included in such total amount, being a sum which represents the value added tax; and

(B) after adding thereto any sum received during that year of assessment on account of any bad debt written off or allowed in any previous year; and

[S 26(1)(x)(iv)(B) am by s 11(1)(b) of Act 10 of 2007.]

(v) “loan” includes the collection of funds from the issue of any debt instrument.

[S 26(1)(x)(v) ins by s 11(1)(b) of Act 10 of 2007.]

(y) the excess, if any, of the aggregate amount of the interest payable for any year of assessment by any holding company to any subsidiary company of such holding company, in respect of any loan obtained from such subsidiary company, over such part of the interest so payable as is attributable to such part of such loan as is equal to thrice the aggregate of the issued share capital and reserves of such holding company, at the end of that year of assessment, where such holding company is a manufacturer:

Provided that, where such holding company is not a manufacturer, the provisions of the preceding paragraph shall apply as if for the reference in that paragraph to the words “thrice the aggregate of the issued share capital and reserves”, there were substituted the words “four times the aggregate of the share capital and reserves.

In this paragraph—

(i) the expressions “subsidiary company” and “holding company” shall have the same respective meanings assigned to them in the Companies Act, No. 7 of 2007;

(ii) any holding company shall, in relation to any year of assessment, be deemed to be “a manufacturer”, if more than fifty per centum of the turnover for that year of assessment of such holding company, is from the sale of products manufactured by such holding company;

(iii) “reserves” do not include reserves created for the purpose of accounting for any surplus from the revaluation of any asset; and

(iv) “turnover” in relation to any year of assessment of any holding company, means the total amount receivable, whether actually received or not, from every sale made in that year of assessment of products manufactured by such holding company—

(A) after deducting therefrom—

(i) any sum included in such total amount, being proceeds from the disposal of any capital asset;

(ii) the amount of any bad debt incurred during that year of assessment, being an amount which had been included in the turnover of such holding company for that or any previous year of assessment; and

(iii) any sum included in such total amount, being a sum which represents the value added tax; and

(B) after adding thereto any sum received during that year of assessment on account of any bad debt, written off or allowed in any previous year; and

(v) “loan” includes the collection of funds from the issue of any debt instrument;

[S 26(1)(y) ins by s 11(1)(c) of Act 10 of 2007; am by s 15(4) of Act 22 of 2011 w.e.f. 1 April 2011.]

(z) the income tax paid by any employer in respect of the employment income of any individual

employed by such employer.

[S 26(1)(z) ins by s 15(5) of Act 22 of 2011
w.e.f. 1 April 2011.]

(2) No person carrying on any trade, business, profession or vocation shall be entitled to any sum for depreciation by wear and tear, or for renewal, or to any allowance under paragraph (a) or paragraph (c) of subsection (l) of section 25

[S 26(2) am by s 19(2) of Act 9 of 2008
w.e.f. 1 April 2006.]

(a) for any year of assessment, in respect of any vehicle used for travelling for the purpose of his trade, business, profession or vocation, except in respect of—

(i) a motor cycle or bicycle used for such purpose by an officer, who is not an executive officer, in the employment of such person; and

(ii) a motor coach used for transporting employees of such person to or from their place of work; and

(b) in respect of any plant, machinery, fixtures, equipment or articles provided for the use of any officer or employee of such person, in the place of residence of such officer or employee,

or for any deduction for any rental or annual payment in respect of any such vehicle, plant, machinery, fixtures, equipment or articles as are referred to in paragraphs (a) and (b).

(3) In ascertaining the profits or income arising from the annual value or rent of land and improvements thereon, no deduction shall be made for outgoing and expenses except those authorized in section 5 or section 6, as the case may be, except in the case of a company carrying on the business of letting premises.

(4) In computing the statutory income for any year of assessment of any person from any trade, business, profession or vocation carried on or exercised by such person, no deduction shall be allowed under section 25 or this section or section 27, in respect of any expenditure or any part thereof, and an assessment shall be made disallowing the entirety or any part of such expenditure notwithstanding anything to the contrary in any other provisions of this Act, if it appears to the Assessor or Assistant Commissioner that the debt or such part thereof attributable to such expenditure or any part thereof, remains unpaid at the time such assessment for that year of assessment is made:

Provided that, if it is proved to the satisfaction of the Assessor or Assistant Commissioner within three years from the end of that year of assessment, that such debt or such part thereof has been paid within two years from the end of that year of assessment, the Assessor or Assistant Commissioner shall, notwithstanding the provisions of section 171, revise the assessment allowing the deduction of the sum so paid and any tax found to have been paid consequent to such disallowance of such deduction, shall notwithstanding anything to the contrary in any other provision of this Act, be refunded.

[S 26(4) subs by s 11(2) of Act 10 of 2007; am by s 13(2) of Act 8 of 2014 w.e.f. 1 April 2014.]

27. Deduction of head office expenses incurred by any non-resident company.

(1) Where any non-resident company carrying on in Sri Lanka any trade or business incurs any expenditure in the nature of head office expenditure, there shall be deducted from the profits and income of such company for such year of assessment from such trade or business, a sum equal to the lesser of—

(a) the amount of such expenditure; or

(b) the amount equal to ten per centum of such profits or income.

(2) For the purpose of this section “head office expenditure” in relation to a non-resident company and to any year of assessment, means the executive and general administration expenditure incurred by or on behalf of such company outside Sri Lanka, including expenditure—

(a) comprising the aggregate of the total profits from employment of and the total cost of travelling undertaken by every employee and every other person employed in or managing the affairs of any office of such company outside Sri Lanka; and

(b) in respect of—

(i) any premises outside Sri Lanka; and

(ii) such other matters connected with the executive and general administration as the case may be, determined by the Commissioner-General having regard to all the circumstances of the case, as being reasonable and commercially justifiable.

CHAPTER V

ASCERTAINMENT OF TOTAL STATUTORY INCOME

28. Basis for computing statutory income.

(1) The statutory income of every person for each year of assessment from every source of his profits or income in respect of which tax is chargeable, shall be the full amount of the profits or income which was derived by him or arose or accrued to his benefit from such source during that year of assessment, notwithstanding that he may have ceased to possess such source or that such source may have ceased to produce income.

(2) Where the Commissioner-General directs under the provisions of subsection (4) that the accounts in respect of any trade, business, profession or vocation be made up for such periods as may be specified in that direction, he may further direct that the statutory income from that source for any year of assessment be computed on the amount of the profits of the period ending in that year of assessment. Where however, the statutory income of any person from a trade, business, profession or vocation has been computed by reference to an account made up for a certain period and such person fails to make up an account for the corresponding period in the year following, the statutory income from that source, both of the year of assessment for which such failure occurs and of the two years of assessment following, shall be computed on such basis as the Commissioner-General shall consider just and equitable in the circumstances of the case:

Provided that the Commissioner-General may at any time vary or revoke a direction given under the preceding provisions of this subsection:

Provided further, that where any such direction is varied or revoked by the Commissioner-General, he may order that the statutory income for any year of assessment from the source in respect of which such direction was given, be computed as if the accounts were made up to the thirty—first day of March in that year of assessment.

(3) Every person who carries on or exercises any trade, business, profession or vocation shall, subject to the provisions of subsection (4), make up the accounts of that trade, business, profession or vocation for each successive period of twelve months ending on the thirty-first day of March of each year:

Provided that where a person—

(a) commences to carry on or exercise a trade, business, profession or vocation in any year of assessment, such person shall make up the accounts of such trade, business, profession or vocation for the period beginning from the date of commencement of such trade, business, profession or vocation and ending on the thirty-first day of March of that year of assessment; and

(b) ceases to carry on or exercise a trade, business, profession or vocation in any year of assessment, such person shall make up the accounts of such trade, business, profession or vocation for the period beginning from the first day of April of that year of assessment and ending on the date of such cessation.

(4) Where any person is unable to comply with the provisions of subsection (3) in relation to any trade, business, profession or vocation carried on or exercised by him, he shall give notice in writing to the Commissioner-General setting out the reasons for his inability to comply with such provisions. The Commissioner-General may, if satisfied with the reason set out in such notice, direct such person to makeup the accounts of that trade, business, profession or vocation for such periods as may be specified in that direction, and it shall be the duty of such person to comply with the direction:

Provided however that the Commissioner-General may at any time vary or revoke any direction given by him under the preceding provisions of this subsection.

29. Apportionment of profits.

Where in order to ascertain the profits or losses of any trade, business, profession, vocation or employment for any year of assessment or other period, it is necessary to divide and apportion in relation to specific periods the profits or losses for any period for which accounts have been made up, or to aggregate any such profits or losses or any apportioned parts thereof, it shall be lawful to make such division, apportionment or aggregation, as the case may be.

Any apportionment of the profits or losses for any period for which accounts have been made up, shall be on the basis that such profits or losses accrued evenly over that period.

30. Total statutory income.

The total statutory income of a person for any year of assessment shall be the aggregate of his statutory income for that year of assessment from every source of his profits or income in respect of which tax is charged.

31. Aggregation of the total statutory income of a child with that of his parent.

The total statutory income for any year of assessment of a child of a resident individual, shall be aggregated with and deemed to form part of the total statutory income of—

(a) his father, if the marriage of his parents subsists in that year of assessment; or

(b) the parent who maintains him and with whom he lives in that year of assessment, if the marriage of his parents does not subsist in that year of assessment.

For the purposes of this section, a marriage shall be deemed not to subsists if the wife is living apart from her husband under a decree of a competent court or duly executed deed of separation or if the husband and wife are in fact separated in such circumstances that the separation is likely to be permanent.

CHAPTER VI

ASCERTAINMENT OF ASSESABLE INCOME

32. Deductions from total statutory income in arriving at assessable income.

(1) The assessable income of a person (other than a company) for any year of assessment shall be his total statutory income for that year other than the—

(a) statutory income from interest from which income tax has been deducted under section 133 or section 135;

(b) statutory income from dividends from which income tax has been deducted under subsection (1) of section 65, whether received directly from such company which distributes the dividend or through any other company; and

(c) statutory income from interest arising or accruing to any individual, being interest from which income tax has been deducted under section 134,

[S 32(1)(c) subs by s 12(1) of Act 10 of 2007; am by s 20(1)(b) of Act 9 of 2008 w.e.f. 1 April 2008.]

subject to the deductions specified in this section:

[S 32(1) am by s 20(1)(a) of Act 9 of 2008
w.e.f. 1 April 2008.]

Provided however, where such income from interest or dividends from which income tax has been deducted under section 133 or subsection (1) of section 65, as the case may be, have been received by a person in the course of carrying on any trade or business as a receipt from such trade or business, such income from interest or dividends shall form part of the total statutory income of such person:

Provided further that the interest received or accruing to any primary dealer being a company or otherwise from which tax has been deducted under section 134 on any primary market transaction on any Security or Treasury Bond issued under the Registered Stocks and Securities Ordinance, or Treasury Bill issued under the Local Treasury Bills Ordinance, or Central Bank Security issued under the Monetary Law Act, shall not be considered as receipts from any trade or business under section 3 for the purpose of computing the statutory income of such company.

(2) The assessable income of any primary dealer, shall not include any interest income received or accruing where—

(a) tax on the total amount of such interest has been deducted under section 134; and

(b) such interest income has been accrued or arisen to such primary dealer in respect of a primary market transaction on any Security or Treasury Bonds issued under the Registered Stocks and Securities Ordinance, or Treasury Bill issued under the Local Treasury Bills Ordinance, or Central Bank Security issued under the Monetary Law Act, referred to in section 134 as the case may be.

For the purposes of subsection (1) and of this subsection—

“interest income” means the proportionate amount of interest or discount allowed by the issuer of any security or instrument referred to in sub-paragraph (b) of this subsection, in proportion to the holding period of such security or other instrument by any holder over the period of maturity of such security or other instrument;

[Am by s 20(2) of Act 9 of 2008 w.e.f. 1 April 2008.]

“primary market transaction” means the purchase of any Security or Treasury Bond issued under the Registered stock and Security Ordinance, or Treasury Bill issued under the Local Treasury Bills Ordinance, or Central Bank Security issued under the Monetary Law Act, at the time of the original issue of such Security, Bill or Bond by any primary dealer, subject to any discount or payment of interest by the issuer; and

“secondary market transaction” means the sale of a security or other instruments referred to in sub-paragraph (b) of subsection (2) of this section or re-purchase or reverse re-purchase of such security or other instruments after the original issue of such security or holding of any such security or instrument for a period longer than one day from the date of acquisition, by any primary dealer who has acquired such security or other instruments.

(3) The assessable income of any person shall not include—

(a) —

(i) any reward received by such person as an informer under any scheme for the payment of such rewards; or

(ii) a share of fine received by such person under any scheme for the distribution of such share of fine,

from any Government Institution, from which income tax has been deducted in accordance with Chapter XIX;

(b) the receipt of any lottery prize or winnings from gambling or betting from which tax has been deducted under section 157; and

(c) interest received on the compensation payable in respect of any immovable or movable property vested in the Government or in the Land Reform Commission or in a Public Corporation from which the income tax has been deducted under section 36.

(d) interest accruing to such person from any Rupee Denominated Treasury Bond, purchased out of funds drawn from any Treasury Bond Investment External Rupee Account.

[S 32(3)(d) ins by s 12(2) of Act 10 of 2007
w.e.f. 1 November 2006.]

(e) the profits and income of such person from the sale of any Rupee Denominated Treasury Bond, purchased out of funds drawn from any Treasury Bond Investment External Rupee Account;

[S 32(3)(e) ins by s 20(3) of Act 9 of 2008
w.e.f. 1 April 2007.]

(f) where such person is the Credit Guarantee Fund of the Central Bank of Sri Lanka, the interest accruing to such Fund from any Treasury Bond issued under the Registered Stocks and Securities Ordinance or from any Treasury Bill issued under the Local Treasury Bills Ordinance;

[S 32(3)(f) ins by s 20(3) of Act 9 of 2008 w.e.f. 1 April 2008.]

(g) interest on which income tax has been deducted under section 95 and accruing to any person or partnership outside Sri Lanka, on any corporate debt security within the meaning of section 135, issued by or on behalf of any company in Sri Lanka and purchased by such person or partnership out of foreign currency brought into Sri Lanka and converted into Sri Lanka currency for such purchase;

[S 32(3)(g) ins by s 20(3) of Act 9 of 2008 w.e.f. 1 April 2008; am by s 16(1)(a) of Act 22 of 2011
w.e.f. 1 April 2011.]

(h) the profits and income from the sale of any gem on which tax has been deducted by the National Gem and Jewellery Authority established by the National Gem and Jewellery Authority Act, No. 50 of 1993, under subsection (1) of section 161A of this Act; and

[S 32(3)(h) ins by s 20(3) of Act 9 of 2008 w.e.f. 1 April 2008; am by s 16(1)(b) of Act 22 of 2011
w.e.f. 1 April 2011.]

(i) profits from any employment, other than profits referred to in paragraph (c) of subsection (1) section 4, from which income tax is deducted by the employer under section 114 and such person being an individual has no other income other than any income referred to in this section as not forming part of assessable income of such individual.

[S 32(3)(i) ins by s 16(1)(c) of Act 22 of 2011
w.e.f. 1 April 2011.]

(4) The assessable income of any person referred to in paragraph (b) of section 7 (other than any registered society referred to in sub-paragraph (xvii) of that paragraph, shall not include—

(a) any interest from which tax has been deducted under section 133 or section 134; or

(b) any dividend from which tax has been deducted under subsection (1) of section 65.

[S 32(4) am by s 12(3) of Act 10 of 2007.]

(5) There shall be deducted from the total statutory income of a person for any year of assessment—

(a) sums paid by such person for any year of assessment by way of:

(i) any ground rent or royalty payable for any period prior to April 1, 2014 and which is paid after April 1, 2014; or

(ii) annuity or interest,

which he is not entitled to deduct under section 25.

For the purpose of this paragraph interest does not include the excess referred to in paragraph (x) or paragraph (y) of subsection (1) of section 26:

[S 32(5)(a) subs by s 9(1) of Act 9 of 2015 w.e.f. 1 April 2015.]

Provided that—

(i) no deduction shall be allowed in respect of any such sum paid, unless the Assessor or Assistant Commissioner is satisfied that the recipient of such payment has issued a valid receipt for such payment, containing name, address and the income tax file number (if any) of such person in Sri Lanka or that the tax has been deducted under this Act before or at the time such payment is made;

(ii) where for any year of assessment any such sum paid and deductible under this subsection exceeds the total statutory income for that year, the excess shall be treated for the purposes of this section, in the same manner as a loss incurred in a trade during that year;

(iii) where any sum is paid by such person by way of an annuity, no deduction shall be allowed in respect of such annuity, unless such annuity is paid—

(A) under an order of court by way of payment of alimony or maintenance;

(B) to his spouse under a duly executed deed of separation; or

(C) in return for full consideration in money or money’s worth.

(iv) where any sum is paid by such person by way of interest, no deduction shall be allowed in respect of such interest, unless such interest is paid under any legal or contractual obligation—

(A) to any bank licensed under the Banking Act, No. 30 of 1988 or any finance company registered under the Finance Company Act, No. 78 of 1988; or

(B) to any other person recognized by the Commissioner-General for the purposes of this paragraph:

Provided however, where the Commissioner-General is satisfied that such recipient of interest has declared such interest as income under this Act, such person may be deemed to be a recognized person.

For the purposes of this paragraph the term “interest” means any interest paid on a loan the proceeds of which are utilized—

(i) for the construction or purchase of any building or for the purchase of any site for the construction of any building;

(ii) in any trade, business, profession or vocation carried on or exercised by him;

(v) no deduction under this section shall be made from any employment income included in the total statutory income;

[S 32(5)(a) proviso para (v) ins by s 16(2) of Act 22 of 2011 w.e.f. 1 April 2011.]

(b) the amount of a loss incurred, other than a loss referred to in paragraph (c) or paragraph (d), incurred by such person in any trade, business, profession or vocation which if it had been a profit would have been assessable under this Act, including any such loss brought forward from a previous year which had not been deducted under this section previously, and any excess treated as a loss under paragraph (ii) of the proviso to paragraph (a), upto a maximum limit of thirty five per centum of the excess of the total statutory income for that year, over the aggregate of—

(i) statutory income from interest and dividends referred to in subsection (1);

(ii) any interest income referred to in subsection (2); and

(iii) any reward, share of fine, any lottery winning and any interest on compensation payable, as referred to in subsection (3),

for that year of assessment and any loss which cannot be deducted, may be carried forward to the next year of assessment and so on:

[S 32(5)(b) am by s 12(4)(b)(i) and (ii) of Act 10 of 2007; s 20(4)(b) of Act 9 of 2008 w.e.f. 1 April 2008.]

Provided however,

(A) no loss incurred on the disposal of shares, rights or warrants in a company referred to in section 44 of this Act, shall be a loss deductible under this paragraph;

(B) no loss shall be carried forward beyond the year of assessment in which the death of such person occurred in the case of an individual, or liquidation of such person occurred in the case of a company or other body of persons;

[S 32(5)(b) proviso para (B) am by s 12(4)(b)(iii)
of Act 10 of 2007.]

(C) where any person has been declared or adjudged insolvent by a competent court, no loss incurred prior to the date of bankruptcy or insolvency shall be deducted from income arising subsequent to such declaration of insolvency;

(D) no loss shall be deducted which is incurred by a company in which there had been a change of ownership otherwise than by way of testate or intestate succession, except against the statutory income of such trade or business of the company as that in which the loss was incurred.

For the purposes of this paragraph, a change of ownership of a company is deemed to have occurred where more than one third of the issued share capital of the company is held at any time in the year of assessment for which the claim for deduction is made, either directly or through nominees, by persons who did not hold such capital at any time in the year of assessment in which the loss was incurred.

[S 32(5)(b) proviso para (D) am by s 12(4)(b)(iv) of Act 10 of 2007.]

(c) any loss incurred on or after April 1, 2007, in any business of life insurance, to the extent of any profits from such business included in such total statutory income; the balance, if any, of such loss after such deduction, shall be deemed to be a loss for the year of assessment immediately succeeding that year of assessment.

For the purpose of this paragraph, profits or loss from any business of life insurance shall be computed in accordance with the provisions of section 92.

[S 32(5)(c) ins by s 12(4)(c) of Act 10 of 2007.]

(cc) Where any person who is engaged in carrying on both life insurance business and general insurance business segregates such life insurance business and the general insurance business into two separate companies, as required by section 53 of the Regulation of Insurance Industry (Amendment) Act, No. 3 of 2011, incurred any loss prior to such segregation of which the entirety or any part thereof had not been deducted previously, the balance, if any, as at the date of such segregation shall, notwithstanding anything to the contrary in any other provision of this Act, but subject to the provisions of paragraph (b), be deducted from the total statutory income of the respective companies in the following manner—

(i) such part of the loss as attributable to the life insurance business, from the total statutory income of the company which carries on long term insurance business;

(ii) such part of the loss as attributable to the general insurance business, from the total statutory income of the company which carries on general insurance business.

[S 32(5)(cc) ins by s 14(1)(b) of Act 8 of 2014
w.e.f. 1 April 2014.]

(d) any loss incurred on or after April 1, 2008, in any business of finance leasing to the extent of any profits from such business included in such total statutory income and the balance, if any, of such loss after such deduction, shall be deemed to be a loss for the year of assessment immediately succeeding that year of assessment.

[S 32(5)(d) ins by s 20(4)(c) of Act 9 of 2008
w.e.f. 1 April 2008.]

(dd) the balance, if any, of any loss deductible under the provisions of this Act, of any business of any bank, financial institution or leasing company which is consolidated, acquired or merged in terms of the guidelines issued by the Central Bank of Sri Lanka subject to conditions specified in the guidelines issued by the Commissioner General, shall continue to be deducted, if it would have been claimed under this section prior to such consolidation, acquisition or merger, notwithstanding anything to the contrary in any other provision of this Act, but subject to the provisions of paragraph (b), from the total statutory income of the respective bank, financial institution or leasing company as a result of such consolidation, acquisition or merger;

[S 32(5)(dd) ins by s 9(2) of Act 9 of 2015
w.e.f. 1 April 2015.]

(e) where any person commenced to carry on any business the annual turnover of which does not exceed rupees five hundred million, any commencement expenses other than the capital expenses incurred by that person in the year of assessment immediately preceding the year of assessment in which the commercial operation of such business is commenced, shall be deducted from the total statutory income of that person for that year of assessment in which commercial operation commenced.

[S 32(5)(e) ins by s 14 of Act 8 of 2012
w.e.f. 1 April 2012.]

(6) —

(a) Where the profits and income of an undertaking were exempt from income tax under section 16, section 16A, section 16B, section 16C, section 16D, section 17, section 17A, section 18, section 19, section 20, section 21, section 22, section 23, section 24, section 24A,
section 24B, section 24C or section 24D of this Act, or under section 17, section 18, section 19, section 20, section 21A, section 21B, section 21C, section 21D, section 21E, section 21F, section 21G or section 21H of Inland Revenue Act, No. 38 of 2000 or under section 16C
or section 17A or section 17C or section 17D or section 17G or section 17H or section 17J or section 17JJ or section 22A, section 22B, or section 22C or section 22D or section 22DD or section 22DDD or section 22DDDD of the Inland Revenue Act, No. 28 of 1979, for any period (such period being referred to in this paragraph as the exempt period), there shall be deducted from the total statutory income of the person who carries on that undertaking in the year of assessment in which such exemption ceases to apply, the excess, if any, of—

[S 32(6)(a) am by s 20(5) of Act 9 of 2008 w.e.f. 1 April 2008; s 14(2) of Act 8 of 2014 w.e.f. 1 April 2014.]

(i) the total of any losses incurred by such person in such undertaking in any year of assessment during the exempt period, over

(ii) such profits and income of that undertaking as were exempt from income tax for any year of assessment during the exempt period succeeding the year of assessment in which such loss in that undertaking was incurred.

(b) Where the entirety or any portion of the balance of such losses referred to in paragraph (a) cannot be deducted from the total statutory income of such person for the year of assessment referred to in paragraph (a), the residue, if any, of such entirety or of such portion, after its deduction from the total statutory income of such person for that year of assessment, shall be deemed to be a loss incurred by such person in that undertaking in the year of assessment immediately succeeding that year of assessment, and may accordingly be deducted in the manner provided for in paragraph (b) of subsection (5).

[S 32(6)(b) am by s 12(5) of Act 10 of 2007.]

(7) The amount of a loss from any trade, business, profession or vocation shall be ascertained in the manner provided for in this Act for the ascertainment of profits from a trade, business, profession or vocation.

[S 32(7) am by s 20(6) of Act 9 of 2008
w.e.f. 1 April 2008.]

(8) Where the total statutory income of any child for any year of assessment is aggregated with, and deemed to be a part of, the total statutory income of his parent for that year of assessment, any sum which could be deducted from the total statutory income of such child under the provisions of this section shall be deducted from the total statutory income of such parent.

CHAPTER VII

ASCERTAINMENT OF TAXABLE INCOME

33. Taxable Income.

(1) The taxable income of an individual or a charitable institution who or which is resident in Sri Lanka in any year of assessment shall be the assessable income of that individual or that institution for that year of assessment after deducting therefrom the aggregate of—

(a) an allowance of—

(i) three hundred thousand rupees in respect of any year of assessment commencing prior to April 1, 2011; and

(ii) five hundred thousand rupees in respect of any year of assessment commencing on or after April 1, 2011, and

[S 33(1)(a) am by s 17(1) of Act 22 of 2011
w.e.f. 1 April 2011.]

(b) any allowance to which such individual or institution is entitled under section 34:

Provided that an individual who is a trustee, receiver, executor or liquidator shall not be entitled to deduct the allowance referred to in paragraph (a) as such trustee, receiver, executor or liquidator:

[S 33(1) first proviso am by s 17(2) of Act 22 of 2011
w.e.f. 1 April 2011.]

Provided further, that for any year of assessment commencing on or after April 1, 2011—

(i) any individual being a citizen of Sri Lanka irrespective of whether such individual is resident in Sri Lanka or not, shall be entitled to deduct the allowance referred to in paragraph (a); and

(ii) an individual shall not be entitled to deduct any part of any allowance under section 34, other than the allowance referred to in paragraphs (u) and (v) of subsection (2) of section 34, from any employment income which is included in such assessable income.

[S 33(1) further proviso ins by s 17(2) of Act 22 of 2011 w.e.f. 1 April 2011; item (ii) am by s 15 of Act 8 of 2014 w.e.f. 1 April 2014.]

(2) The taxable income of any person (other than any resident individual or any charitable institution) for any year of assessment shall be the assessable income for that year of assessment of that person after deducting therefrom any allowance to which such person is entitled under section 34.

34. An allowance in respect of qualifying payments.

(1) Subject to the provisions of subsection (4), there shall be deducted, for the purposes of section 33, from the assessable income of a person for any year of assessment in respect of every qualifying payment made by him or deemed to have been made by him in that year of assessment, an allowance equal to the amount of such qualifying payment.

(2) In this section, “qualifying payment” means—

(a) a donation made by any person in money to an approved charity being a charity which is established for the provision of institutionalized care for the sick or the needy;

[S 34(2)(a) am by s 18(1)(a) of Act 22 of 2011
w.e.f. 1 April 2011.]

(b) a donation made in money or otherwise to—

(i) the Government of Sri Lanka;

(ii) a local authority;

(iii) any Higher Educational Institution established or deemed to be established under the Universities Act, No. 16 of 1978;

(iv) the Buddhist and Pali University or any Higher Educational Institution established by or under the Buddhist and Pali University Act, No. 74 of 1981;

(v) a fund established by the Government of Sri Lanka,

(vi) a fund established by a local authority and approved by the Minister;

(vii) the Sevana Fund created and administered by the National Housing Development Authority established by the National Housing Development Authority Act, No. 17 of 1979.

(viii) a fund established by a Provincial Council and approved by the Minister.

[S 34(2)(b)(viii) am by s 13(1)(a) and proviso rep by s 13(1)(b) of Act 10 of 2007.]

(ix) the Api Wenuwen Api Fund established by Api Wenuwen Api Fund Act, No. 6 of 2008;

[S 34(2)(b)(ix) ins by s 21(1)(a) of Act 9 of 2008
w.e.f. 1 January 2008.]

(x) National Kidney Fund established under the National Kidney Foundation of Sri Lanka (Incorporation) Act, No. 34 of 2006;

[S 34(2)(b)(x) ins by s 10(1)(a) of Act 9 of 2015 w.e.f. 1 April 2015.]

Provided where the fund referred to in sub-paragraph (v) of this paragraph is the President’s Fund established by the President’s Fund Act, No. 7 of 1978 and any public corporation is required in terms of the law by or under which such corporation is established to remit any profits of such corporation to the President’s Fund, the profits so remitted shall be deemed for the purpose of this paragraph, to be donations made to such Fund;

[S 34(2)(b) proviso ins by s 10(1) of Act 19 of 2009
w.e.f. 1 April 2009.]

(c) expenditure incurred by any person on any project included in a development plan of the Government of Sri Lanka, if such expenditure was incurred—

(i) with prior written approval of the Minister; and

(ii) in accordance with such terms and conditions as may have been specified by the Minister at the time of granting such approval, such approval being granted and such terms and conditions being specified by the Minister, having regard to the development priorities of the Government;

(d) any amount paid prior to April 1, 2011, by an individual as a contribution to a provident fund for self employed persons, approved by the Commissioner-General for such purpose;

[S 34(2)(d) am by s 18(1)(b) of Act 22 of 2011
w.e.f. 1 April 2011.]

(e) any contribution made prior to April 1, 2011, by an individual to such provident fund or pension fund as is approved by the Commissioner-General or to a regulated provident fund, where no part of the emoluments from which such contributions are made is exempt from income tax under paragraph (b) of section 8:

[S 34(2)(e) am by s 10(2) of Act 19 of 2009 w.e.f. 1 April 2006; s 18(1)(c) of Act 22 of 2011 w.e.f. 1 April 2011.]

Provided that where such contribution exceeds twelve per centum of such emoluments, such excess shall be deemed not to comprise a qualifying payment.

(f) a donation made prior to April 1, 2011, by any person in money to—

[S 34(2)(f) am by s 18(1)(d) of Act 22 of 2011
w.e.f. 1 April 2011.]

(i) the Industrial Technology Institute established by the Science and Technology Development Act, No. 11of 1994;

(ii) the Sri Lanka Foundation Institute established by the Sri Lanka Foundation Law, No. 31 of 1973;

(iii) the Tower Hall Theatre Foundation, established by the Tower Hall Theatre Foundation Act, No. 1 of 1978;

(iv) the Sri Lanka Inventors Commission, established by the Sri Lanka Inventors Incentives Act, No. 53 of 1979;

(v) the S W R D Bandaranaike National Memorial Foundation, established by the S W R D Bandaranaike National Memorial Foundation Law, No. 2 of 1975;

(vi) the Institute of Fundamental Studies, Sri Lanka, established by the Institute of Fundamental Studies, Sri Lanka, Act, No. 55 of 1981;

(vii) the International Winged Bean (Dambala) Institute, established by the International Winged Bean (Dambala) Institute Act, No. 7 of 1982;

(viii) the Sri Lanka Institute of Printing, established by the Sri Lanka Institute of Printing Act, No. 18 of 1984;

(ix) the Arthur C. Clarke Institute for Modern Technologies, established by the Science and Technology Development Act, No. 11 of 1994;

(x) the Institute of Policy Studies of Sri Lanka, established by the Institute of Policy Studies of Sri Lanka Act, No. 53 of 1988;

(xi) the J R Jayawardena Centre, established by the J R Jayawardena Centre Act, No. 77 of 1988;

(xii) the Institution of Engineers, Sri Lanka, incorporated by the Institution of Engineers, Sri Lanka Act, No. 17 of 1968;

[S 34(2)(f)(xii) ins by s 10(3) of Act 19 of 2009
w.e.f. 1 April 2009.]

(g) any premia in any year of assessment, being premia which have accrued due for payment—

(i) on a life insurance policy (not being a pure endowment policy) the premia in respect of which are payable annually over a period of not less than three years;

(ii) on a policy of medical insurance other than any policy referred to in paragraph (gg),

not being premia paid outside Sri Lanka in respect of any such policy issued outside Sri Lanka;

[S 34(2)(g)(ii) am by s 18(1)(e) of Act 22 of 2011
w.e.f. 1 April 2011.]

(gg) any premia in any year of assessment commencing on or after April 1, 2011, being pemia which have accrued due for payment on a policy of special health insurance which covers any incurable disease;

[S 34(2)(gg) ins by s 18(1)(f) of Act 22 of 2011
w.e.f. 1 April 2011.]

(h) —

(i) expenditure incurred by any person in the production at a cost of not less than five million rupees, of any film the production of which was completed prior to April 1, 2007; or

(ii) expenditure incurred by any person in the production at a cost of not less than five million rupees, of any film the production of which was completed after April 1, 2007:

[S 34(2)(h) am by s 21(1)(b) of Act 9 of 2008
w.e.f. 1 April 2008.]

Provided however that any expenditure referred to in this paragraph shall, for the purposes of subsection (1) be deemed to have been incurred in the year of assessment in which the production of such film is completed.

For the purposes of this paragraph the expression—

(i) “expenditure” in relation to the production of a film includes any expenditure incurred in the promotion of that film, within a period of ninety days from the date of completion of the production of such film;

(ii) “film” means any audio-visual presentation of the moving image produced on any form or format whatsoever and which is intended primarily to be exhibited by projection on a screen in a cinema;

(i) any expenditure incurred prior to April 1, 2011, otherwise than out of a loan referred to in paragraph (j) by an individual in either the construction or the purchase of a house, being in either case the first house, constructed or purchased by such individual on or after April 1, 2001;

[S 34(2)(i) am by s 18(1)(g) of Act 22 of 2011
w.e.f. 1 April 2011.]

(j) any expenditure incurred prior to April 1, 2011, by an individual on the repayment of the capital of any approved housing loan, either for the construction or the purchase of a house, being in either case the first house constructed or purchased by such individual on or after April 1, 2001.

[S 34(2)(j) am by s 18(1)(h) of Act 22 of 2011
w.e.f. 1 April 2011.]

For the purpose of this paragraph “approved housing loan” means any housing loan obtained from the Government, or any banking institution within the meaning of the Monetary Law Act, or from any Provincial Fund, any local authority or any other institution, approved by the Minister in charge of the subject of Housing.

(k) fifty per centum of any investment of not less than rupees five hundred thousand in any year of assessment in the purchase by any person of ordinary shares, other than the existing shares, issued by a venture capital company during the period that such company is exempted from income tax under section 23;

(l) any sum invested by any company and referred to in paragraph (c) of subsection (2) of section 20;

(m) the expenditure referred to in paragraph (c) of subsection (2) of section 21.

(n) expenditure not exceeding twenty five million rupees incurred in the construction and equipping of a cinema, being a cinema—

(i) in which the exhibition of cinematographic films commences on or after April 1, 2008; and

(ii) which is certified by the National Film Corporation of Sri Lanka established by the National Film Corporation of Sri Lanka Act, No. 47 of 1971 as being equipped with digital technology, Digital Theatre System and Dolby Sound Systems;

[S 34(2)(n) ins by s 21(1)(c) of Act 9 of 2008
w.e.f. 1 April 2008.]

(o) expenditure not exceeding ten million rupees incurred in the upgrading of a cinema, being a cinema—

(i) in which the exhibition of cinematographic films had commenced prior to April 1, 2008;

(ii) which was not equipped with digital technology, Digital Theatre Systems and Dolby Sound Systems, prior to April 1, 2008; and

(iii) which is certified by the National Film Corporation of Sri Lanka, established by the National Film Corporation of Sri Lanka Act, No. 47 of 1971 as being equipped on or after April 1, 2008, with digital technology, Digital Theatre Systems and Dolby Systems;

[S 34(2)(o) ins by s 21(1)(c) of Act 9 of 2008
w.e.f. 1 April 2008.]

(p) expenditure incurred by any company in the relocation of any relocated undertaking referred to in subsection (2) of section 21A;

[S 34(2)(p) ins by s 21(1)(c) of Act 9 of 2008 w.e.f. 1 April 2008; am by s 15(1)(a) of Act 8 of 2012
w.e.f. 1 April 2012.]

(q) any sum invested by any person in an undertaking referred to in paragraph (zzz) of section 13;

[S 34(2)(q) ins by s 21(1)(c) of Act 9 of 2008 w.e.f. 1 April 2008; am by s 15(1)(b) of Act 8 of 2012
w.e.f. 1 April 2012.]

(r) expenditure incurred by any person in any community development project carried on in any economically marginalised village as identified and published in the Gazette by the Commissioner- General;

[S 34(2)(r) ins by s 15(1)(c) of Act 8 of 2012
w.e.f. 1 April 2012.]

(s) investment of not less than fifty million rupees in the acquisition of fixed assets made by any person on or after April 1, 2011 but before April 1, 2014 in the expansion of any undertaking which would have been qualified for exemption under section 16C or section 17A had such undertaking commenced to carry on business on or after April 1, 2011:

[Subs by s 10(1)(b) of Act 9 of 2015 w.e.f. 1 April 2015.]

Provided however, where such investment is made in any high tech plant, machinery or equipment which is acquired for energy efficiency purposes or for technology upgrading purposes or introducing any new technology or for power generation using renewable energy resources in the expansion of such undertaking on or after April 1, 2011, but prior to April 1, 2015 such investment shall comprise a qualifying payment.

[S 34(2)(s) subs by s 16(1)(a) of Act 8 of 2014
w.e.f. 1 April 2014.]

(t) investment of not less than any sum referred to in
Co
lumn II of the Schedule to section 16D of this Act made in fixed assets in any undertaking engaged in the manufacture of any product referred to in Column I of that Schedule, being an investment which would have qualified such undertaking for exemption under section 16D, referred to above had such undertaking commenced to carry on business on or after April 1, 2012;

[S 34(2)(t) ins by s 15(1)(c) of Act 8 of 2012
w.e.f. 1 April 2012.]

(u) where the profits from employment of any individual who is a citizen of Sri Lanka or resident in Sri Lanka other than profits referred to in paragraph (c) of subsection (1) of section 4, exceeds five hundred thousand rupees, for any year of assessment commencing on or after April 1, 2013, then—

(i) such part of profits in excess of five hundred thousand rupees; or

(ii) for any year of assessment ended prior to April 1, 2015, one hundred thousand rupees and for any year of assessment commencing on or after April 1, 2015, two hundred and fifty thousand rupees,

whichever is lower;

[S 34(2)(u) ins by s 13(1) of Act 18 of 2013 w.e.f. 1 April 2013; am by s 16(1)(b) of Act 8 of 2014 w.e.f. 1 April 2014; s 10(1)(c) of Act 9 of 2015 w.e.f. 1 April 2015.]

(v) such part of official emoluments arising in Sri Lanka to any individual who is not a citizen of Sri Lanka and not resident in Sri Lanka—

(i) for any year of assessment commencing on or after April 1, 2013, but prior to April 1, 2015 does not exceed one hundred thousand rupees; or

(ii) for any year of assessment commencing on or after April 1, 2015 does not exceed two hundred and fifty thousand rupees;

[S 34(2)(v) subs by s 10(1)(d) of Act 9 of 2015 w.e.f. 1 April 2015.]

(w) any expenditure incurred not exceeding six hundred thousand rupees for any year of assessment commencing on or after April 1, 2014 on the repayment of the capital of a loan obtained from any bank licensed under the Banking Act, No. 30 of 1988 or any finance company licensed under the Finance Business Act, No. 42 of 2011, of which the proceeds are utilized to construct a house or to purchase a house or a unit of a residential apartment complex, by an individual who is a professional and who furnishes a return under section 106, whether such individual obtained such loan alone or together with any other individual:

Provided that, if such loan is obtained together with another individual or obtained for a co-owned property, such deduction shall not exceed the amount of expenditure attributable to such individual who obtained such loan.

For the purpose of this paragraph, “professional” shall have the same meaning as given for that expression in section 40C;

[S 34(2)(w) ins by s 16(1)(d) of Act 8 of 2014
w.e.f. 1 April 2014.]

(x) any expenditure incurred by any bank, any financial institution or any leasing company, by way of cost of acquisition or merger of any other bank, any other financial institution or any other leasing company, where such cost is ascertained by considering all the facts on case by case basis in accordance with the guidelines issued by the Central Bank of Sri Lanka, in the manner specified by the Commissioner General for that purpose.

[S 34(2)(x) subs by s 10(1)(e) of Act 9 of 2015 w.e.f. 1 April 2015.]

(3) Where the total statutory income of any child for any year of assessment is aggregated with, and deemed to be a part of, the total statutory income of his parent for that year of assessment, any qualifying payment made by that child in that year of assessment shall be deemed to be a qualifying payment made by such parent.

(4) The deduction from the assessable income of any—

(a) person, other than a company, for any year of assessment—

(i) in respect of all qualifying payments other than those referred to in paragraphs (a), (b), (c), (e), (g), (gg) (h), (i), (j), (k), (n), (o), (q), (r), (s), (t), (u), (v) and (w) of subsection (2) made by him or deemed to have been made by him in any year of assessment shall not exceed one third of such assessable income or twenty five thousand rupees whichever is less;

[S 34(4)(a)(i) am by s 21(2)(a) of Act 9 of 2008 w.e.f. 1 April 2008; s 18(2)(a) of Act 22 of 2011 w.e.f. 1 April 2011; s 15(2)(a) of Act 8 of 2012 w.e.f. 1 April 2012;
s 13(2) of Act 18 of 2013 w.e.f. 1 April 2013; s 16(2)(a)
of Act 8 of 2014 w.e.f. 1 April 2014.]

(ii) in respect of all qualifying payments referred to in paragraph (c) of subsection (2), made by him or deemed to have been made by him in that year of assessment shall not exceed twenty five thousand rupees;

(iii) in respect of any qualifying payment referred to in paragraph (h) of subsection (2), deemed to have been made by him in that year, of assessment shall not exceed—

[S 34(4)(a)(iii) am by s 13(2) of Act 10 of 2007.]

(A) ten million rupees, where such year of assessment is the year of assessment commencing on April 1, 2006; and

(B) thirty five million rupees, where such year of assessment is any year of assessment commencing on or after April 1, 2007;

[S 34(4)(a)(iii)(B) am by s 21(2)(b) of Act 9 of 2008
w.e.f. 1 April 2008.]

(iv) in respect of the aggregate of all qualifying payments made and referred to in paragraphs (a), (e) and (g) of subsection (2), shall not exceed seventy five thousand rupees or one third of such assessable income whichever is less;

(v) in respect of all qualifying payments referred to in paragraphs (i) and (j) of subsection (2) made by him in that year of assessment, shall not exceed one third of the assessable income or one hundred thousand rupees whichever is less;

(vi) in respect of all qualifying payments referred to in paragraphs (k) of subsection (2) made by him in that year of assessment, shall not exceed one third of his assessable income or such qualifying payment whichever is less;

(vii) in respect of all qualifying payments referred to in paragraph (n) of subsection (2) made by him in that year of assessment, shall not exceed twenty five million rupees;

[S 34(4)(a)(vii) ins by s 21(2)(c) of Act 9 of 2008
w.e.f. 1 April 2008.]

(viii) in respect of all qualifying payments referred to in paragraph (o) of subsection (2) made by him in that year of assessment, shall not exceed ten million rupees;

[S 34(4)(a)(viii) ins by s 21(2)(c) of Act 9 of 2008
w.e.f. 1 April 2008.]

(ix) in respect of all qualifying payments referred to in paragraph (r) of subsection (2) made by him in that year of assessment shall not exceed one million rupees;

[S 34(4)(a)(ix) ins by s 15(2)(b) of Act 8 of 2012
w.e.f. 1 April 2012.]

(x) in respect of all qualifying payments—

(A) referred to in paragraph (s) of subsection (2) made by him in that year of assessment shall not exceed twenty five per centum of such qualifying payment:

Provided however, where investments made in more than one year of assessment are aggregated to reach the minimum investment to qualify for deduction as qualifying payment, such investment made in any previous year of assessment (being any year of assessment commencing on or after April 1, 2011) shall be deemed to be an investment made in the year of assessment in which the fifty million rupees aggregate is reached;

[S 34(4)(a)(x) item (A) effective from 1 April 2011.]

(B) referred to in paragraph (t) of subsection (2) made by him in that year of assessment shall not exceed twenty five per centum of such qualifying payment:

Provided however, where investments made in more than one year of assessment are aggregated to reach the minimum investment to qualify for deduction as qualifying payment, such investment made in any previous year of assessment (being any year of assessment commencing on or after April 1, 2012) shall be deemed to be an investment made in the year of assessment in which the respective minimum investment referred to in section 59C is reached;

[S 34(4)(a)(x) ins by s 15(2)(b) of Act 8 of 2012
w.e.f. 1 April 2012.]

(b) a company, for any year of assessment—

(i) in respect of all qualifying payments other than those referred to in paragraphs (b), (h), (k), (l), (m), (n), (o), (q), (r), (s), (t) and (x) of subsection (2), made by that company or deemed to have been made by that company in that year of assessment shall not exceed one-fifth of such assessable income;

[S 34(4)(b)(i) am by s 21(2)(d) of Act 9 of 2008 w.e.f. 1 April 2008; s 15(2)(c) of Act 8 of 2012 w.e.f. 1 April 2012; s 16(2)(b) of Act 8 of 2014 w.e.f. 1 April 2014.]

(ii) in respect of any qualifying payment referred to in paragraph (h) of subsection (2), made by that company in that year of assessment shall not exceed—

[S 34(4)(b)(ii) am by s 13(3) of Act 10 of 2007.]

(A) ten million rupees, where such year of assessment is the year of assessment commencing on April 1, 2006; and

(B) thirty five million rupees, where such year of assessment is any year of assessment commencing on or after April 1, 2007;

[S 34(4)(b)(ii)(B) am by s 21(2)(e) of Act 9 of 2008
w.e.f. 1 April 2008.]

(iii) in respect of all qualifying payments referred to in paragraph (k) of subsection (2), made by that company shall not exceed one-fifth of its assessable income or such qualifying payment, whichever is less;

(iv) in respect of all qualifying payments, referred to in paragraph (l) of subsection (2), made by that company, shall not exceed one hundred million rupees, or such qualifying payment, whichever is less.

(v) in respect of all qualifying payments referred to paragraph (a) of subsection (2) by made by that company, shall not exceed one fifth of the assessable income or five hundred thousand rupees, whichever is less;

[S 34(4)(b)(v) ins by s 21(2)(f) of Act 9 of 2008
w.e.f. 1 April 2008.]

(vi) in respect of all qualifying payments referred to in paragraph (n) of subsection (2) made by that company in that year of assessment, shall not exceed twenty five million rupees;

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