On 5 June 2025, the Minister of Finance, Dr. the Honourable Renganaden Padayach presented
the 2025/2026 National Budget. Among the
proposed measures are significant changes to the personal income system, personal reliefs, deductions and fringe benefit taxation as
outlined below:
Change
to Personal Income Tax Bands:
The number
of personal income tax bands will be reduced from eleven to three.
Current
Tax Rates: 2024-2025 Tax Year
|
|
Annual
Chargeable Income
|
|
|
|
|
From (Rs)
|
To
(Rs)
|
|
Tax
Rate
|
|
Bracket 1
|
0
|
390 000,00
|
First 390,000
|
0%
|
|
Bracket 2
|
390 000,00
|
430 000,00
|
Next 40,000
|
2%
|
|
Bracket 3
|
430 000,00
|
470 000,00
|
Next 40,000
|
4%
|
|
Bracket 4
|
470 000,00
|
530 000,00
|
Next 60,000
|
6%
|
|
Bracket 5
|
530 000,00
|
590 000,00
|
Next 60,000
|
8%
|
|
Bracket 6
|
590 000,00
|
890 000,00
|
Next 300,000
|
10%
|
|
Bracket 7
|
890 000,00
|
1 190 000,00
|
Next 300,000
|
12%
|
|
Bracket 8
|
1 190 000,00
|
1 490 000,00
|
Next 300,000
|
14%
|
|
Bracket 9
|
1 490 000,00
|
1 890 000,00
|
Next 400,000
|
16%
|
|
Bracket
10
|
1 890 000,00
|
2 390 000,00
|
Next 500,000
|
18%
|
|
Bracket
11
|
2 390 000,00
|
And above
|
On the
reminder
|
20%
|
Proposed
New Tax Rates: 2025 -2026 Tax Year
|
|
Annual
Chargeable Income
|
|
|
|
|
From
|
To
|
|
Tax
Rate
|
|
Bracket 1
|
0
|
500 000,00
|
First 500,000
|
0%
|
|
Bracket 2
|
500 000,00
|
1 000 000,00
|
Next 500,000
|
10%
|
|
Bracket 3
|
1 000 000,00
|
And above
|
On the
reminder
|
20%
|
Tax
Relief and Deductions
The
government is also reviewing and streamlining the various tax reliefs and
deductions available to individuals under the personal income tax system.
Tax
Exemption
Employees
earning a monthly salary of up to Rs 30,000 (or Rs 390,000 annually) are exempt
from paying tax. This exemption limit will be raised by Rs110,000 to Rs 38,462
per month (or to Rs 500,000 annually).
Deduction for Dependent Child with a Disability
A taxpayer will now be entitled to claim the full deduction for a dependent child with a disability, regardless of any financial assistance the child receives under the National Pensions Act or the Social Contribution and Social Benefits Act.
Introduction of Fair Share Contribution
A new Fair Share Contribution will be introduced for high-income earners. Individuals with annual net income exceeding Rs 12 million, including dividend income, will be subject to a 15% levy on their chargeable income plus dividend income.
- This contribution will be collected through the PAYE system.
- It applies to income earned from 1 July 2025 and will remain effective for three income years (until 30 June 2028).
Review of Car Benefit Taxation
The taxable values of car fringe benefits provided by employers will be revised based on cylinder capacity and car cost.
|
|
Monthly Taxable Benefit
|
|
|
From
|
To
|
|
|
|
Cars costing not
more than Rs 3 million
|
|
Cylinder Capacity
|
|
|
|
Up to 1,600cc
|
Rs 9,500
|
Rs 12,000
|
|
1,601 to 2,000cc
|
Rs 10,750
|
Rs 13,500
|
|
Above 2,000c
|
Rs 12,000
|
Rs 15,000
|
|
Electric Car
|
NA
|
Rs 13,500
|
|
Car Costing
|
|
|
|
More than Rs 3mil up to Rs 5mil
|
NA
|
Rs 25,000
|
|
More than Rs 5mil up to Rs 8mil
|
NA
|
Rs 35,000
|
|
More than Rs 8mil
|
NA
|
Rs 50,000
|
Review of Personal Reliefs and Deductions
The following reliefs and deductions will be abolished from the income year starting 1 July 2025:
- Deduction of wages paid to household employees
- Donations to charitable institutions
- Relief for adoption of animals
- Angel investor allowance
The
proposed amendments have not yet been enacted. We will keep you informed as
soon as these changes take effect.
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