Kandy is one of the better places in Sri Lanka to buy traditional crafts. The Kandyan Arts and Crafts Association near the lake sells lacquerware, silver repoussé, hand-loom textiles, and carved wooden objects at fair prices. The gem trade is also significant — Kandy sits close to the Ratnapura gem-mining region and there are several established gem dealers in the city center. If you are buying gems, use a reputable dealer with a physical address and written receipts; the tuk-tuk driver who offers to take you to a "special" gem shop is not your friend.
The government-run Laksala handicraft shop sells a reliable cross-section of Sri Lankan crafts at fixed prices — useful if you find the negotiation of private shops exhausting. The main tea brands sold in supermarkets are fine; for better quality teas, specialist shops near the temple sell estate teas and single-origin varieties.