How much tax do I pay on my gratuity in Sri Lanka?

Your retiring gratuity joins the 12% basket with your non-Government commuted pension, ETF and any approved-scheme compensation. The first Rs 5,000,000 of that combined basket is tax-free; the excess is taxed at 12%. A Rs 7,300,000 basket, for example, pays 12% on Rs 2,300,000 = Rs 276,000.

Is ETF taxable when I retire in Sri Lanka?

Yes, but gently. Your ETF payout is added to the 12% basket alongside your gratuity and non-Government commuted pension. It is only taxed to the extent the whole basket exceeds Rs 5,000,000, and then only at 12%. On its own, a modest ETF balance usually falls inside the tax-free slab.

Is EPF withdrawal taxed in Sri Lanka?

No. A payment from the EPF or any other approved/regulated provident fund is exempt under APIT Table 03 and is not added to either taxable basket. Enter it in the EPF field only for your own records — the calculator shows it separately and never taxes it.

What is the tax-free limit on terminal benefits in Sri Lanka?

The 12% basket — gratuity, non-Government commuted pension, ETF and approved-scheme compensation combined — has a Rs 5,000,000 tax-free slab. The separate 36% basket (non-approved compensation and unapproved-fund payments) is fully exempt only while your year-to-date pay plus that basket stays within Rs 1,800,000.

How is compensation for loss of office (VRS) taxed in Sri Lanka?

It depends on the scheme. Compensation paid under a uniform scheme approved by the Commissioner-General joins the 12% basket. Compensation under a non-approved scheme goes to the 36% basket: once your year-to-date pay plus the compensation exceeds Rs 1,800,000, the whole compensation is taxed at 36%.

Is the Government pension taxed under this table?

No. Government pensions and Government retiring benefits are exempt and are not entered here at all. This table covers private-sector once-and-for-all payments. Only a commuted pension from a non-Government plan belongs in the 12% basket.

Can I reduce the tax that was withheld?

Possibly. The withholding is provisional. If your actual marginal rate for the year is lower than the 12% or 36% deducted, you can request a direction from the IRD Clearance & Directions Unit within 90 days of the payment to reconcile the tax against your real liability.

Does the 36% relief apply to just the excess or the whole amount?

The Rs 1,800,000 figure is a cliff, not a running allowance. If your year-to-date pay plus the 36% basket stays at or below it, nothing is withheld. The moment it goes over, the flat 36% applies to the entire non-approved basket — not only the part above the threshold.

Sri Lanka · Finance

Sri Lanka Terminal Benefits Tax Calculator — Gratuity, ETF & VRS

See exactly how much tax is withheld from your retirement or resignation lump sum — and what lands in your account. Uses the IRD's APIT Table 03 for Year of Assessment 2025/26 (1 April 2025 – 31 March 2026). No signup, no ads, sources cited below.

By Induwara Ashinsana— Executive Director, Ryzera TechnologiesUpdated Jul 12, 2026

Terminal benefits taxY/A 2025/26

IRD Table 03 · verified

Load example

Retiring gratuity (Rs)

Lump-sum gratuity paid on retirement or resignation.

Commuted pension — non-Government (Rs)

One-off commuted pension from a private / approved plan. Government pension is exempt.

ETF payout (Rs)

Employees' Trust Fund balance released at retirement.

Compensation for loss of office / VRS (Rs)

Redundancy or voluntary-retirement settlement. Set the scheme type below.

Compensation scheme

Approved → 12% basket. Not approved → 36% basket.

Other / unapproved-fund / non-cash (Rs)

Unapproved provident-fund sums, other retirement payments, and non-cash benefits at market value.

Taxable pay already received this year (Rs)

Taxable remuneration paid this Y/A up to termination. Only affects the 36% relief check.

EPF payout — exempt (Rs)exempt

EPF / approved provident fund. Shown separately; not taxed under this table.

Total tax withheld

Rs 276,000

Net terminal benefit

Rs 7,024,000

After tax, taxable baskets only

Exempt (EPF etc.)

Rs 0

Paid on top, not taxed

Effective rate

3.78%

Tax ÷ taxable gross

How the tax is built up

12% basket (Table 03 §02)
Basket total	Rs 7,300,000
Tax-free slab	− Rs 5,000,000
Excess taxed at 12%	Rs 2,300,000
Tax on 12% basket	Rs 276,000
36% basket (Table 03 §03)
Basket total	Rs 0
Relief check (≤ Rs 1,800,000)	Within relief — nil
Tax on 36% basket	Rs 0
Total tax withheld	Rs 276,000

This is the amount your employer / the ETF must withhold. If your marginal rate is lower, you can request a directionfrom the IRD Clearance & Directions Unit within 90 days to reconcile the final tax.

Rates from IRD APIT Table No. 03 (Y/A 2025/26): first Rs 5,000,000 tax-free then 12% on the excess; 36% on the non-approved basket above the Rs 1,800,000 relief.

How it works

When you retire, resign, or accept a voluntary-retirement (VRS) package, the one-off payments you receive are taxed under the Inland Revenue Department's APIT Table No. 03 — the schedule for once-and-for-all payments. Rather than one rate on the whole settlement, the table sorts your payments into two taxable baskets and an exempt group, and taxes each differently.

The 12% basket. Your retiring gratuity, a commuted pension from a non-Government plan, your ETF payout, and any compensation paid under a CGIR-approved uniform scheme are added together. The first Rs 5,000,000 of that combined basket is tax-free; whatever is left is taxed at 12%:

tax = 0.12 × max(0, basket − 5,000,000)

The 36% basket. Compensation paid under a non-approved scheme, sums from an unapproved or non-regulated provident fund, other retirement payments, and non-cash retirement benefits (valued at market price) form a second basket. This one has a relief cliff. Let Y be the taxable pay you already received this year up to termination. If Y + basket stays at or below Rs 1,800,000, no tax is withheld. The moment it exceeds that figure, the flat 36% applies to the whole basket — not just the excess:

tax = (Y + basket ≤ 1,800,000) ? 0 : 0.36 × basket

The exempt group. Your EPF or any other approved/regulated provident fund sum, your Government pension and Government retiring benefits, and any capital sum for personal injury or death are excluded entirely. They are not added to either basket and never taxed under this table — a point people often get wrong when they confuse ETF (taxable in the 12% basket) with EPF (exempt).

The calculator adds the two tax figures for the total withheld, and subtracts that from the taxable baskets for your net terminal benefit. The 12% figure is independently re-derived by walking each component against the Rs 5,000,000 slab, so the two methods confirm each other. The result is what your employer or the ETF must retain; if your marginal rate is lower you can seek an IRD direction within 90 days to reconcile it.

Worked examples

Standard retirement (approved scheme only)

Gratuity 4,000,000 + pension 2,500,000 + ETF 800,000

12% basket: 4,000,000 + 2,500,000 + 800,000 = 7,300,000
Excess over 5,000,000 = 2,300,000
Tax: 0.12 × 2,300,000 = 276,000
36% basket: 0 → tax 0
Total tax = 276,000 → net = 7,300,000 − 276,000 = 7,024,000

VRS with unapproved compensation

Gratuity 3,000,000 (approved) + compensation 4,000,000 (not approved); YTD pay 1,200,000

12% basket: 3,000,000 → below 5,000,000 → tax 0
36% basket: 4,000,000
Relief check: 1,200,000 + 4,000,000 = 5,200,000 > 1,800,000 → taxed
Tax: 0.36 × 4,000,000 = 1,440,000
Total tax = 1,440,000 → net = 7,000,000 − 1,440,000 = 5,560,000

Small payout within the slab (edge case)

Gratuity 2,000,000 + ETF 500,000 (approved); EPF 3,000,000 exempt

12% basket: 2,000,000 + 500,000 = 2,500,000 → below 5,000,000 → tax 0
36% basket: 0 → tax 0
EPF 3,000,000 is exempt — excluded from both baskets
Total tax = 0 → net terminal benefit = 2,500,000
EPF 3,000,000 is paid in full on top, untaxed

Frequently asked questions

Sources & references

The rates, thresholds and reliefs on this page were last cross-checked against IRD APIT Table No. 03 on 2026-07-12. The page is reviewed every April (start of a new SL Y/A) and whenever a new Inland Revenue Amendment Act becomes law. It is guidance, not formal tax advice.

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