New Tax Refund Rules for Income Tax
The recently proposed Inland Revenue (Amendment) Bill No. 569 of 2025 ( Issued on 21.02.2025) brings significant changes to the tax refund process in Sri Lanka. These amendments affect individual taxpayers, businesses, and senior citizens, altering the timeframes and limits for claiming tax refunds. Here’s a detailed breakdown of the changes and their implications.
What Has Changed?
1. Reduction in Refund Request Period
Previously, under the Inland Revenue Act No. 24 of 2017, taxpayers had four years to request a refund of excess taxes paid. The new amendment reduces this period to 2.5 years (30 months).
Impact: Taxpayers must be more vigilant and file refund claims promptly. Any claims submitted after 2.5 years from the end of the relevant assessment year will no longer be valid.
2. Changes to Individual Refund Limits
The amendment modifies the refundable amounts for individual taxpayers:
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For tax years before April 1, 2025: Maximum refund Rs. 60,000 per year or Rs. 15,000 per quarter.
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For tax years on or after April 1, 2025: Maximum refund Rs. 180,000 per year or Rs. 45,000 per quarter.
Impact: This change benefits taxpayers who are eligible for larger refunds, particularly after April 2025. Those with overpaid taxes will be able to claim higher amounts, but they must ensure timely filing to qualify.
3. New Rules for Automatic Refund Processing
Under the new Section 150(4), from April 1, 2024, refunds or credits will only be processed if:
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The taxpayer submits a refund claim within 30 months of the relevant tax year.
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If a refund is initiated by the Commissioner-General, it will follow a separate timeline.
Impact: The new system provides more control over refunds, requiring taxpayers to follow stricter deadlines. It also prevents long-pending refund requests from accumulating at the Inland Revenue Department (IRD).
Comparison: Old vs. New Refund Rules
| Aspect | Before (Act No. 24 of 2017) | After (Bill No. 569 of 2025) | Impact |
|---|---|---|---|
| Refund request period | 4 years | 2.5 years | Less time to claim refunds |
| General refund limit (individuals) | Rs. 100,000 per year | Rs. 180,000 per year | Increased refund eligibility |
| Senior citizen refund limit | Rs. 25,000 per quarter | Rs. 45,000 per quarter | More benefits for senior taxpayers |
| Automatic refunds (by IRD) | No strict limit | Timeframe specified by Commissioner-General | More controlled refund system |
Key Takeaways for Taxpayers
✅ Plan Refund Requests Early: With the reduction in the claim period, taxpayers must ensure they submit refund applications within 2.5 years of the relevant tax year.
✅ Higher Refund Limits Available: From April 1, 2025, individuals can claim up to Rs. 180,000 per year, benefiting those with larger tax credits.
✅ Senior Citizens Gain More Benefits: The refund cap for senior citizens has almost doubled, allowing them to recover more excess tax paid.
✅ New Timeline for Automatic Refunds: Refunds not claimed within the new timeframe may be processed at the discretion of the Commissioner-General, reducing taxpayer control over unclaimed refunds.
Source : Inland Revenue (Amendment) - GS (Bill No - 569/2025) ,
