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Income Tax

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Inland Revenue Acts

Inland Revenue Act No. 10 of 2006

Inland Revenue (Amendment) Act No. 10 of 2007

Inland Revenue (Amendment) Act No. 9 of 2008

Inland Revenue (Amendment) Act No. 19 of 2009

Inland Revenue (Amendment) Act No. 22 of 2011

Inland Revenue (Amendment) Act No. 8 of 2012

Inland Revenue (Amendment) Act No. 18 of 2013

Inland Revenue (Amendment) Act No. 8 of 2014

Inland Revenue (Amendment) Act No. 9 of 2015


LIMITED LIABILITY COMPANY

Requirement

Any person who carries on any trade, business, profession or vocation, including any company which has been entered in to any agreement with the Board of Investment, shall obtain a registration number within one year of such Registration or incorporation or commencement of the activity as the case may be, from the CGIR and furnish Return of income before 30th November following the end of each year of assessment. Further Tax Registration certificate (TN) shall be attached to your Annual Return which furnishes to the Registrar of Companies in every year.


Registration
A duly completed and signed application form be submitted with the following documents to the Department of Inland Revenue.

  • Articles of Association
  • Form 1 (Particulars of Directors & Secretaries, Address), 20, 13
  • Business Incorporation certificate (Form 2A)
  • Request Letter

 

Directors Liability on Taxation
Penalties and Offences
The secretary, manager, director or other principal officer of any company shall be liable to do all such acts, matters, or things as required to be done under the tax laws and if they fail to do so, such persons shall be deemed to be guilty of that offence unless he proves that the offence was committed without his knowledge and that he exercised all such diligence to prevent the commission of that offence as he ought to have exercised having regard to the nature of his function in such capacity and to do all other circumstances. If any person committed for offence shall be liable for maximum of rupees fifty thousand or to imprisonment of either description for a term not exceeding six months.


Taxes in Default
Income Tax
Where the entirety of the tax or part of such tax payable by a company has not been paid such company shall be deemed to be a defaulter under the Inland Revenue Act no. 10 of 2006. Therefore, defaulter is the company but not directors. Hence directors are not personally liable for income tax. However, in liquidation of Private Companies directors are jointly and severally liable for payment of income tax and first charge will be income tax under the income tax Act.


Punishment for income tax in default – section 174
Where any person, including director, principal officer or an office bearer, has defaulted in the payment of income tax and where such default commences on or after April 1, 2004, and continue for a period more than more than three years, Commissioner General shall submit to the Magistrate a certificate and such person liable on conviction after summary trial before a magistrate, to a period of imprisonment of either description not exceeding three months. However, director has right to show cause.


RESIDENT INDIVIDUAL /SOLE PROPRIETOR

Registration

Duly completed and signed application form be submitted to the Department of Inland Revenue with the following documents
  • Certificate of Business Registration (Sole Proprietorship)
  • Financial Statements
  • Copy of National Identity Card

Liability on Taxation
Individuals are personally liable to pay income tax and The Department of Inland Revenue takes recovery actions under the income tax Act for non – payment of income tax and non – furnishing of Income Tax Return.

Requirement
Where Trade, business, profession or vocation carried on by two or more persons in partnership, income tax file shall be opened with The Department of Inland Revenue under the partnership name.

Registration
Duly completed and signed application form be submitted to the Department of Inland Revenue with the following documents
Business Registration Certificate of partnership business

  • Financial Statements
  • Photo copy of Identity Cards of Partners

Income Tax  -  Year of Assessment 2016/2017

 

(1) Corporate Income Tax

Income tax rate applicable on the profits from;

  • Banking and financial services, insurance industry and trading activities (including any primary preparation for the adapting for sale of any article) shall be 28%.

  • Liquor, tobacco, lottery, betting and gaming should be 40%.

  • All other activities shall be 17.5%.

  • Other sources such as interest income, royalty, dividends etc. shall continue with the existing rate applicable depending on the source of income.

(2) Non-corporate Income Tax

(a) Personal Income Tax

  • Progressive income tax rates, tax free allowance, the tax deductions and tax exemptions on the profit from employment, currently applicable on personal income tax including Pay-As-You-Earn (PAYE) tax, shall be continued.

  • Employment income shall be taxed at the maximum rate of 16% and the current PAYE tables could be applied for the year of assessment commencing form 01.04.2016.

  • The PAYE Tax liability of an employee shall be deducted from the employee’s remuneration and the provisions preventing employer settling employee’s PAYE liability will be introduced.

  • Maximum income tax rate applicable for individuals on the profits from any activity other than any financial, trading, liquor, tobacco, lottery, betting and gaming activity should be limited to 17.5%.

  • Profits from any financial or trading activity (including any primary preparation for the adapting for sale of any article) shall be limited to 24%.

  • Profits from any liquor, tobacco, lottery, betting and gaming activity shall be limited to 40%.

  • Income from rent, Net annual value and similar sources should be taxed up to the maximum rate of 24%.

(b) Others

  • Income tax rate applicable for the year of assessment 2015/2016 shall be continued.

(3) Withholding Tax on Interest

The present Withholding Tax deductible by Bank or Financial Institutions on interest from deposits at the rate of 2.5% shall be continued.

 

 

Income Tax Rates for Individual other than Employee - Year of Assessment 2015/2016


Tax Fee Allowance  Rs 500,000

Tax Liability of Taxable Income
First Rs. 500,000  4%
Next Rs. 500,000 8%
Next Rs 500,000  12%
Next Rs 500,000 16%
Net Rs. 1,000,000            20%
Balance  24%


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