Outline Of Capital Gains Tax in Sri Lanka

  • Capital Gain Tax (CGT)

    • Tax on gains realized on the transfer of ownership including sale, exchange, transfer, distribution, cancellation, redeeming, destruction, loss, expiration, expropriation or surrender of an investment asset.

    • Elements of CGT

    • Investment Asset

    • Realization of the asset

    • Cost of the asset

    • Consideration

  • CGT = ( Consideration received – Cost of the asset at realization ) x 10%

Investment Asset

  • “Investment asset” –

  • means a capital asset held as part of an investment, but-

  • excludes the principal place of residence of an individual, provided it has been owned by the individual continuously for 3 years before disposal, and lived-in for at least 2 of those 3 years.

  • “Capital asset”– means each of the following assets:-

  1. land or buildings;

  2. a membership interest in a company, partnership or trust;

  3. a security or other financial asset;

  4. an option, right or other interest in an asset referred above;

    • But excludes trading stock or a depreciable asset;

    • Excluded Investment Assets from CGT

      • Principal place of residence

      • Quoted shares listed in Colombo Stock Exchange

    • Exempted amount from CGT

      • Resident individual’s gain from realization of an investment asset not exceeding Rs.50,000 and

      • The total gains do not exceed Rs.600,000 in the year of assessment.

    • Capital Loss

      • A loss from the realization of an investment asset will not be deductible against any gain from the realization of investment asset.

Realization of Asset

  • On transfer of ownership of an asset (including when the asset is sold, exchanged, transferred, distributed, canceled, redeemed, destroyed, lost, expired, expropriated or surrendered) to a spouse;

  • Ceasing of the person owning the asset, including death;

  • When a debt claim is being written off as bad by the person;

  • When the person begins to employ trading stock, a depreciable asset, a capital asset of a business or an investment asset, in such a way that it ceases to be an asset of any of those types;

  • When a person resident in Sri Lanka ceases to be resident in Sri Lanka, all assets owned by the person is deemed to be realized;

Special cases

  • Transfer on death

    • Consideration on realization = Cost of asset

  • Transfer to spouse as part of divorce settlement or bona fide separation

    • Consideration on realization = Cost of asset

  • Transfer to ‘associate’ or gift

    • Consideration on realization = Cost of the asset / Market Value, whichever is higher

  • Transfer of land or building to ‘associate’ of an individual or charitable institution

    • Consideration on realization = Cost of the asset

  • Assignment of rights & obligations over an asset for more than 50 years (including by way of lease)

  • Transfer by way of finance lease/ instalment sale (hire purchase)

Cost of the Asset

The cost of an investment asset held by a person as at 30th September 2017 is equal to the market value of the asset at that time.

  • Expenditure incurred in acquiring the asset including expenditure on construction, manufacture or production of the asset;

  • Expenditure incurred in altering, improving, maintaining or repairing the asset;

  • Incidental expenditure incurred in acquiring and realizing the asset;

(a) advertising expenditure, transfer taxes, duties and other expenditure of transfer;

(b) expenditure of establishing, preserving or defending ownership of the asset; and

(c) remuneration for the services of an accountant, agent, auctioneer, broker, consultant, legal advisor, surveyor or valuer relating to above expenses.

  • The cost of an asset shall not include consumption expenditure, excluded expenditure and expenditure to the extent to which it is deducted in calculating a person’s income or included in the cost of another asset.

Payment and Filing obligation

  • Due Date for Payment of Tax :

    • Not later than one month after the date of realization of investment asset.

  • Due Date for Furnish Returns :

    • Not later than one month after the date of realization of investment asset.

  • Submit to :

    • The relevant Inland Revenue Metropolitan/Regional Office

    • The relevant Inland Revenue Metropolitan/Regional Office


  • Default in payment

    • CGIR issues a Notice of default

    • If payment is not made within 21 days from the date of Notice of Default, penalty of 20% will be imposed and legal action will be instituted.

  • Failure to submit return

    • Penalty of 5%, and 1% for each month in default, OR

    • 50,000, and Rs. 10,000 for each month in default, whichever is higher

    • Penalty is limited to Rs. 400,000.