Short answer

• There are some tax advantages connected with life insurance in Sri Lanka, but the rules are complex and have changed in recent years. Key points: certain premium payments and approved pension/annuity payments have historically qualified for personal tax relief; life insurance death benefits paid to beneficiaries are generally not treated as taxable income; and the tax treatment of life-insurance returns and of insurers’ surpluses has been reworked by recent Inland Revenue legislation so distributions/returns can be taxed at specific rates. (lankalaw.net)

What matters most (expanded, with sources)

1. Personal tax relief for premiums and approved retirement savings

• Sri Lanka’s tax law has long provided relief “in respect of premia on life insurance policies and annuities and provident or pension fund contributions” (i.e., individuals can get tax relief on qualifying premium/contribution payments). The precise limits and calculation method are set in the Inland Revenue legislation and related guidance, and the provision’s wording goes back in the statutes. (lankalaw.net)

2. Treatment of benefits to policyholders / beneficiaries

• Death benefits paid under life insurance policies are treated differently from ordinary income. In practice, proceeds payable on death to beneficiaries are generally not taxable as the recipient’s assessable income (they are capital/benefit payments rather than salary or investment income). However, other payments (for example, cash-surrenders, investment-type payouts or interest-like distributions) may have different tax treatment depending on the contract and how the law is applied. Check the specific product wording and IRD guidance. (oxfordbusinessgroup.com)

3. Taxation of life-insurance returns / distributions and insurers

• Recent reforms to the Inland Revenue Act changed how the life insurance industry is taxed. The law now identifies “surplus” and investment income from life funds and applies specified tax rates to distributions or gains (for example, transitional and special rates for life-insurance-related income have been introduced). That means the tax cost on returns inside some life products — or on distributions to participating policyholders — may be different than before and can affect net yields for policyholders. (srilankalaw.lk)

4. Withholding, double taxation and product design

• The Finance Acts and Inland Revenue changes in recent years have introduced measures aimed at preventing perceived “double non‑taxation” (industry and IRD debates are ongoing). The effective tax on life business (and some policyholder distributions) may thus be higher than earlier practice. Insurers’ accounts and market commentary since the law changes reflect higher tax burdens on life business. (marketscreener.com)

Practical implications for a taxpayer in Sri Lanka

• If you pay premiums for qualifying life insurance or approved pension/annuity products, you may be able to claim tax relief or a deduction (subject to statutory limits and proof of payment). (lankalaw.net)
• If you are a beneficiary receiving a death benefit, that payment is ordinarily not taxable as income — but confirm for the exact product and any associated investment element. (oxfordbusinessgroup.com)
• If you hold participating or investment‑linked life products, some portions of returns or distributions may be taxed either at the insurer level or as policyholder income depending on the product design and current tax rules. (srilankalaw.lk)

Why you should verify for your situation (and where to check)

• Tax law and budget measures affecting insurers and life products in Sri Lanka have changed recently (new Inland Revenue Act provisions, finance acts and budget announcements). Because thresholds, rates and rules can change with each budget or legislative amendment, it’s important to confirm the current position before relying on a tax benefit. (kpmg.com)

Recommended next steps

• Ask your insurer for the product’s tax notes (they typically explain how premiums, surrenders and benefits are treated for tax).
• Check the latest guidance or public rulings of the Sri Lanka Inland Revenue Department (IRD) and the current text of the Inland Revenue Act as amended. The IRD or a recent budget circular will show current numerical limits and any special rates. (srilankalaw.lk)
• For definitive tax advice tailored to your situation (e.g., whether your premiums qualify, what to declare, how surrender values are taxed), consult a Sri Lanka tax adviser or chartered accountant.

If you’d like, I can:

• look up the latest IRD public ruling or budget notes on life-insurance relief and post the exact current limits/rates, or
• fetch the specific paragraph(s) of the Inland Revenue Act and any recent Finance Act changes that affect life insurance (and cite them). Which would you prefer?