Interest revenue is subject to taxation under various conditions as outlined in the Inland Revenue Act, No. 10 of 2006. Here are some key points regarding the tax on interest revenue:
- Tax Deduction at Source: The entity paying interest (e.g., the Government, Land Reform Commission, public corporation, or local authority) is required to deduct a tax of 10% from the interest paid and remit it to the Commissioner-General. This deducted amount is set off against the tax payable by the recipient of the interest.
- Statutory Income from Interest: For individuals, statutory income from interest, from which income tax has been deducted under section 134, is subject to the deductions specified in the Act. If such income from interest or dividends has been received by a person in the course of carrying on any trade or business, it forms part of the total statutory income of that person.
- Interest on Government Securities: Interest income accrued or received on outright or reverse purchase transactions on government securities, bonds, or bills, after deducting interest expenses on repurchase transactions, is taxable. If the interest is from a primary or secondary market transaction involving corporate debt security and income tax has been deducted at the rate of 10%, it is considered in the tax assessment.
- Interest from Treasury Bonds: Interest accruing to a person from Rupee Denominated Treasury Bonds purchased with funds from a Treasury Bond Investment External Rupee Account is also considered for tax purposes.
- Interest on Loans Granted Abroad: The gross interest on loans granted by a company, partnership, or other body of persons outside Sri Lanka is chargeable with income tax at the rate specified in the Fifth Schedule to the Act.
- Interest as Full Amount: Income from interest is considered to be the full amount of interest due, whether received or not, without any deduction for outgoing or expenses. However, if interest is unpaid and cannot be recovered, the assessment may be reduced by the amount of the interest that cannot be recovered.
These points provide an overview of how interest revenue is treated for tax purposes according to the Inland Revenue Act of Sri Lanka. Specific rates and conditions may apply depending on the type of interest income and the entity involved.