I think you indirectly answered your own question when you said,
I don't want to looking at other jobs since work-life balance of this company is really good when comparing other companies in Sri lanka
When considering salary - especially when comparing against "the job market" in general, and trying to make a case for a raise - it's important to consider the entire compensation package and work environment.
In other words, the company's value to you extends beyond the number on your paycheck. Yes, the "average" salary for your position in the open job market may be 20% higher than what you make, but the "average" employer may have worse benefits (retirement, PTO, working hours, etc), worse work/life balance (after-hours calls, expectation to answer email from home, etc) worse culture in the office (demanding bosses, uninteresting projects, etc).
When you're weighing your current situation against hypothetical situations elsewhere, you need to decide for yourself what the value of these other factors is.
So, to answer your questions:
Am I overthinking about it?
No, I think you're correctly analyzing the situation. The current workplace has value that other employers may not be able to offer - you know that, and your supervisor may know that, as well.
Or what is the best way to ask salary increment in this situation?
Weigh the entire package when determining if you'll ask, or what the number you ask for should be. You don't need to make this about you potentially leaving - employers who only respond under threat are probably not working for in the first place. It should be about your value to your current employer, weighted against their entire value to you. I would consider the following factors:
- How much is your good work-life balance worth to you?
- How do you compare (in performance) to others in your position in this company?
- What is your employer's process for raises/promotions? (some employers don't offer off-cycle raises, you may need to move to a higher-graded position to get a raise).
You've already found questions that have lots of good info on how to actually ask. If you can evaluate your total situation and still feel underpaid, then you should pursue a raise based on what you find, and following the advice in the referenced questions.