The tax liability on bank interest income exceeding Rs. 150,000 per month will be determined only when individuals file their tax returns, the Government has revealed.

A senior official from the Ministry of Finance who wished to remain anonymous confirmed this, stating that if an individual held multiple accounts across different banks, it was their responsibility to submit a tax return, after which the Inland Revenue Department (IRD) would assess their total income and corresponding tax liability.

The official clarified that the tax applied to interest income generated from deposits, not the deposit amount itself. 

This means that if an account holder’s interest income surpasses Rs. 150,000 in a month, it will be subject to tax. 

The tax is not triggered by the deposit of Rs. 150,000 or more into a bank account but by the interest accrued on such deposits.

This tax mechanism will come into effect from 1 April 2025, giving individuals three months to prepare.

The official also noted that systems were already in place to collect bank account details and that the IRD was currently receiving data from account holders. However, further details on the implementation process are still under discussion.

Recently, Deputy Finance Minister Prof. Anil Jayantha Fernando stressed that the recent increase in Withholding Tax (WHT) on bank deposits was intended as a tax credit that could be offset when filing a tax return, rather than an additional tax burden.

He explained that individuals earning less than Rs. 150,000 in monthly interest income, who have had the 5% WHT deducted, often did not request refunds, inadvertently paying the tax.

Minister Fernando assured that the Government was working on a mechanism to ensure individuals earning lower interest amounts did not pay the WHT unnecessarily, with further measures to be finalised in the coming months.