Capital Gains Tax on Land Sales in Sri Lanka (2026)

Selling land in Sri Lanka may trigger a Capital Gains Tax (CGT) liability, even when the property is personally owned and the sale has nothing to do with a business. Under the Inland Revenue Act, land and buildings held as investment assets are subject to CGT when disposed of, subject to the exemptions set out below. With the Inland Revenue (Amendment) Act, No. 11 of 2026, the CGT rate for individuals and partnerships rose from 10% to 15%, effective 3 June 2026. Here is what property owners should know before signing a sale deed.

How is CGT calculated on a land sale?

Capital Gains Tax is charged on the gain, not on the gross selling price. The gain is calculated as:

Capital Gain = Sale Consideration − Tax Cost

The tax cost may include the acquisition cost, qualifying improvement expenditure and incidental costs of acquisition and disposal, subject to the Inland Revenue Act.

Example. An individual buys land for Rs. 10 million and sells it in October 2026 for Rs. 20 million. With no other allowable adjustments:

Important technical point. For CGT purposes the sale consideration is the higher of the amount actually received or receivable, and the market value of the land at the date of disposal. Selling below market value to a related party does not reduce the CGT, the market value is still used.

What if the land was bought before 30 September 2017?

A transitional rule in section 203(4) of the Inland Revenue Act applies to investment assets held on 30 September 2017. The tax cost of such an asset is generally the market value as at 30 September 2017, rather than the original purchase price.

Example. Land bought for Rs. 3 million in 2015, with a market value of Rs. 5 million on 30 September 2017, is sold for Rs. 15 million in October 2026. The illustrative gain is Rs. 10 million (Rs. 15 million minus the Rs. 5 million transitional cost), and CGT at 15% is Rs. 1.5 million before any other allowable adjustments.

To rely on this rule you need a credible valuation of the land as at 30 September 2017, ideally from a chartered valuer. Keep the valuation report with the original deed and subsequent improvement receipts.

Inherited or gifted land

Inherited or gifted land is not automatically exempt from CGT when the recipient sells it. The applicable tax cost must be determined under the Inland Revenue Act, which may involve the previous owner’s tax cost and, where relevant, the 30 September 2017 transitional valuation. The market value on the date of inheritance or gift should not be assumed to be the CGT cost without checking the Act.

Property owners should retain the original deed, inheritance or gift documents and any valuation evidence. These documents are frequently requested when the CGT return is reviewed.

Exemptions that may apply

• Principal place of residence. A resident individual’s principal residence may be exempt where it has been owned continuously for at least three years immediately before disposal, and occupied by the individual for at least two of those three years, calculated on a daily basis. A bare plot of land does not qualify just because it is personally owned.
• Small capital gains. A resident individual may qualify for an exemption where the gain from an investment asset does not exceed Rs. 50,000 and the individual’s total gains from investment assets during the year of assessment do not exceed Rs. 600,000. Both conditions must be met.
• Business trading stock. Land held as trading stock in a property-dealing business is outside the CGT regime, but the resulting profit is taxable as business income instead, which may be taxed at a higher effective rate.

When must the CGT return be filed?

1. File within 30 days of month-end. The CGT return must be submitted, and the tax paid, within 30 days after the end of the calendar month in which the asset is realised.
2. October 2026 example. If land is sold on, say, 15 October 2026, the CGT return and payment are generally due by 30 November 2026.
3. Keep the trail. Hold on to the sale deed, deposit and improvement receipts, bank statements for the consideration received, and a copy of the filed CGT return and payment receipt. These sit on your personal income tax file for the year of assessment.

Before you sign the sale deed

1. Confirm the tax cost. Original cost, improvement costs, and whether the 30 September 2017 transitional rule applies.
2. Check for exemptions. Principal residence, small gains, or trading stock treatment.
3. Benchmark the market value. Especially if the buyer is a relative or related party.
4. Calculate the CGT at 15%. So the funds are ring-fenced from the sale proceeds and not spent before the return is due.

Capital Gains Tax looks simple on paper, 15% of the gain, but the real work is establishing the correct tax cost, applying the right exemptions, and documenting the position if IRD asks later. This matters most for inherited plots and land acquired before September 2017, where cost-basis decisions can swing the tax bill by millions of rupees.

More on this topic

• Sri Lanka personal income tax 2025-26, rates, bands and reliefs
• Sri Lanka income tax deadline 30 November 2026
• How to file personal income tax in Sri Lanka 2025-26
• Sri Lanka Withholding Tax quick guide

References

• Inland Revenue Act, No. 24 of 2017 (as amended), including section 203(4) transitional rule.
• Inland Revenue (Amendment) Act, No. 11 of 2026, raising the CGT rate for individuals and partnerships to 15% from 3 June 2026.
• Inland Revenue Department guidance on Capital Gains Tax, ird.gov.lk.

Disclaimer: This article is for general educational purposes and reflects the tax provisions considered as at 30 October 2026. Actual tax treatment depends on the facts of the transaction and the applicable legislation at the time. Obtain professional advice before disposing of an investment asset.