The government has proposed further personal income tax reductions under the 2027 Budget, including an increase in the tax-free income threshold and revisions to tax brackets, offering additional monthly tax relief of up to Rs. 15,750.

According to the official Budget Speech released by Parliament, President Anura Kumara Dissanayake has proposed increasing the annual personal income tax-free allowance from Rs. 1.8 million to Rs. 1.95 million.

This will raise the monthly tax-free threshold from Rs. 150,000 to Rs. 162,500, meaning individuals earning salaries and allowances of up to Rs. 162,500 per month will not be required to pay personal income tax on their salaries.

The government has also proposed revising the progressive income tax structure by expanding the taxable income brackets and introducing a 12% tax rate after the initial 6% bracket, replacing the existing 18% rate at that level.

Under the proposed structure, the first Rs. 850,000 of annual taxable income will be taxed at 6%, followed by 12% on the next Rs. 600,000.

The subsequent Rs. 600,000 income brackets will be taxed at 18%, 24% and 30%, while the remaining taxable income will be subject to the maximum rate of 36%.

The revised tax brackets will also increase the monthly income threshold at which the highest personal income tax rate applies from approximately Rs. 358,000 to Rs. 433,000.

According to the Budget Speech, the proposed revisions will provide individual taxpayers with additional monthly tax relief ranging from Rs. 750 to Rs. 15,750, depending on their income.

The President also noted that the government had increased the annual tax-free threshold from Rs. 1.2 million to Rs. 1.8 million in 2025, providing monthly tax relief ranging from Rs. 3,500 to Rs. 20,500.

When combined with the reforms introduced in 2025, the proposed 2027 changes will bring total monthly tax relief to between Rs. 4,250 and Rs. 36,250, according to the Budget Speech.

The proposed changes form part of amendments to the Inland Revenue Act, No. 24 of 2017.

The proposals are outlined in the official Budget Speech released by Parliament while the President is delivering his 2027 Budget address. (Newswire)