Selling a house, land, or any real estate in Sri Lanka? Then you’ve probably heard about Capital Gains Tax (CGT). It’s one of the most common questions property owners ask today — “How much tax do I need to pay?”

In this guide, we break down CGT in simple language so you know what it is, when it applies, how to calculate it, and how to reduce your tax legally.

✅ What Is Capital Gains Tax?

Capital Gains Tax is a tax charged on the profit you make when you sell a capital asset, such as land, a house, or a building.
Sri Lanka reintroduced CGT under the Inland Revenue Act No. 24 of 2017, which took effect from 1 April 2018.

The key word here is profit — not the total sale price.

🧾 When Does CGT Apply?

CGT applies whenever a property is “realised”, meaning:

  • Selling the property
  • Transferring it to someone else
  • Exchanging it
  • Giving it away
  • Losing it through destruction or similar events

As long as ownership changes hands, CGT may apply.

🏡 Which Property Sales Are Exempt from CGT?

Not every sale is taxable. You are NOT required to pay CGT if:

✔️ 1. You sell your Principal Place of Residence

Your home is exempt if:

  • You owned it for at least 3 consecutive years, and
  • You lived in it for at least 2 of those 3 years

✔️ 2. Your total annual gains are small

If you earn:

  • Less than Rs. 50,000 gain per transaction, and
  • Less than Rs. 600,000 total gains per year

…you are exempt.

✔️ 3. Certain specific asset exclusions apply

Some assets defined in the Act are not counted as “investment assets.”

💰 CGT Rate in Sri Lanka

  • Individuals: 10%
  • Companies: 30%

For most people selling land or houses, the CGT rate is 10%.

📘 How to Calculate Capital Gains Tax (Step-by-Step)

This is the part most sellers want to understand clearly.

Step 1: Identify the Sale Price (Consideration Received)

This is the amount you actually receive for the property.

Step 2: Determine the Cost Base

Your cost base is:

  • The original purchase price OR,
  • If you owned the property before 30 September 2017, you may use the market value as at that date.

Step 3: Add Allowable Costs

These expenses can be deducted:

  • Legal fees
  • Stamp duty
  • Valuation fees
  • Advertising costs
  • Renovation and improvement costs
  • Broker / agent commissions
  • Transfer fees

Step 4: Calculate the Gain

Capital Gain = Sale Price – (Cost Base + Allowable Expenses)

Step 5: Apply CGT

CGT Payable = Capital Gain × 10%

📊 Example CGT Calculation (Simple & Clear)

Let’s say:

  • Sale price: Rs. 45,000,000
  • Cost base + renovations + legal fees: Rs. 30,000,000

Then:

Capital Gain = 45,000,000 – 30,000,000 = Rs. 15,000,000
CGT (10%) = Rs. 1,500,000

So you pay Rs. 1.5 million as Capital Gains Tax.

⏳ When Must CGT Be Paid?

You must file the CGT return and pay the tax within 1 month of selling the property.

Failing to do so can result in penalties.

✔️ Documents You Should Keep Ready

To calculate and file CGT accurately, have these on hand:

  • Deeds (purchase and sale)
  • Valuation report (if using 30-Sep-2017 value)
  • Receipts for renovations or improvements
  • Proof of legal and agency fees
  • Taxpayer Identification Number (TIN)
  • CGT return form
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