Mr.Gamage is an engineer working for a construction project.

The following is the

information relating to his employment income as well as his investment income for the
year of assessment 2018/19.
Employment Income
▪ Basic Salary - Rs. 180,000 per month .
▪ He is provided a motor vehicle out of a hired vehicle on which Rs. 40,000 is paid to a
vehicle hiring company. It has an engine capacity of less than 1800 cc.
▪ The rent payable on the residence rented out by Mr.Gamage is Rs. 45,000 per month. It
is undertaken by the employer.
Income from Investments
Mr. Gamage has made investments in banks and financial institutions in Sri Lanka, government
securities, and shares of several other companies in Sri Lanka and received the following income
and expenditure during the above year of assessment.

➢ From investments made in companies.

• He has earned profit on sale of shares in listed companies amounting to Rs. 32,000.
• He has received a net dividend amounting to Rs. 10,000 by a company which enjoys
a tax holiday under section 16C of the Inland Revenue Act.
• A dividend amounting to Rs. 11,000 was paid by a company out of the dividends
which have been received by it prior to April 1, 2018

➢ From banks and financial institutions-

• Net Interest from saving accounts in banks. - Rs. 13,000.
• Net Interest From fixed deposits in commercial banks - Rs. 25,000.
• Net Interest From RFC account – US $ 200, one dollar equals to Rs.175

➢ From Government Securities

• Interest from Treasury Bills - Rs. 42,000
• Interest from Treasury Bonds Rs. 32,000

➢ He won a lottery in cash amounting to Rs. 300,000 .

 ➢ Investment in Immovable properties

Property 1
Mr.Gamage has purchased a house in Malabe in 2016 out of a loan taken from a bank.
This was given on rent to an employee of a private firm and received Rs. 35,000 rent
per month. Interest paid on the loan Rs. 48,000. The Rating Assessment of the house
is Rs. 60,000, and the rates are paid at 30%. It is paid by the tenant. Mr.Gamage has
spent Rs. 98,000 on repairs and maintenance of the house.
.
Property 2
A Plot of land was purchased in 2015 at Nugegoda , and it is given for a parking space
for textile company. The ground rent received is Rs. 200,000 and 10% withholding tax
has been deducted.

Compute the income tax to be paid for the the year of 2018/19.

Answers

Computation of tax liability of Mr.Gamage for the year of assessment 2018/19

Income Exempt/ Liable
Excluded
Basic salary 180,000 x 12 2,160,000 2,160,000
Vehicle Benefit 40,000 x 12 (Market value of the benefit)
480,000
Rent paid by employer 45,000 x 12
540,000

Employment Income 3,180,000

Investment Income
Income from companies
Profit from sale of shares (listed Shares) :-Exempted 32,000 32,000
Net Dividend - 10,000 - from 16C Company:- final 10,000 10,000
Dividend -11,000 (such dividend was distributed out of the 11,000 11,000
dividend received ) :-Exempted under transitional gazette
Income from banks and financial institutions
interest from Savings - Net 13,000 Final WHT Payment 13,000 13,000
(FWH)
interest from fixed deposits 25,000 - FWH 25,000 25,000
From RFC Acc. US$ 200 × 175 - FWH 35,000 35,000

Interest from government securities

Interest from treasury Bills -Rs. 42,000 Final WHT payment 42,000 42,000
tax not deducted (FWH ND) 32,000 32,000
Interest from treasury Bonds -Rs. 32,000 Final WHT payment
tax not deducted (FWH ND)

Lottery income - exempt since it is less than 500,000 300,000 300,000

Income from properties (note 1)
Property 1 372,000 372,000
Property 2 222,222 222,222

Gain on realisation of capital assets 0

Income from Investment 594,222

Total Assessable Income 3,774,000

Less: Qualifying Payment
-
Reliefs
Personal allowance -500,000
Relief on employment income -700,000
Relief on rent Income 372,000 x25% = 93,000 93,000
Since he has decided to claim repair expenses as 25%
allowance, actual expenses (98,000) can not be claimed

Taxable Income 2,481,000

*capital gain -------

Tax liability
First 600,000 × 4% = 24,000
Next 600,000 × 8% = 48,000
Next 600,000 × 12% = 72,000
Next 600,000 × 16% = 96,000
Next 81,000 × 20% = 16,200

256,200
Capital Gains
x10% -
 FINAL WHT PAYMENT WHT WHT not
Deducted Deducted
& rate
Net Dividend - 10,000 Final WHT Payment (FWH) 10,000
Interest from Savings - Net 13,000 - FWH 13,000
interest from fixed deposits 25,000 - FWH 25,000
From RFC Acc. US$ 200 × 175 - FWH 35,000

Interest from government securities

Interest from treasury Bills -Rs. 42,000 42,000x5% 2,100
Interest from treasury Bonds -Rs. 32,000
Since Final WHT has not been deducted, tax is payable.
However, it has been determined that in respect of individuals 32,000x5% 1,600
, the tax is payable only at 5%, and thereafter it is treated as
final

Total Tax payable 259,900

Less
S.A Payment
PAYE
WHT
Balance Tax Payable

Note 1: Income from properties

Property 1: (No WHT was deducted since the tenant is not conducting a business , he is an
employee of a firm)

Gross rent 35,000 x 12 420,000

Less:
Interest on loan (48,000)
Rates paid - not allowed since it is paid by the
tenant
Repair expenses can be claimed as relief
Rent income 372,000

Property 2:

Ground rent received Net 200,000

Gross rent - 200,000/90 x 100 222,222