History Of Income Tax In France

Published Date: 02 Nov 2017

S. NO.

TOPIC

PAGE NO.

1.

EVOLUTION OF TAX LAW: A COMPARISON

3

2.

INCOME TAX RATE: DIFFERENCE

5

3.

DIFFERNCE IN EXEMPTIONS

6

4.

DIFFERENCE BETWEEN TAXABLE INCOME

7

5.

TAXABLE INCOME FOR DOMICILES AND NON-DOMICILES: A COMPARITIVE STUDY

8

6.

INCOME FROM DIVIDENDS

11

7.

DETERMINATION OF TOTAL INCOME IN FRANCE AND INDIA

12

8.

CONCLUSION

14

EVOLUTION OF TAX LAW: A COMPARISON

HISTORY OF INCOME TAX IN FRANCE

In France, the tax systems have never been of a uniform nature and have always shown inconsistency.  Earlier, the church and lords used to collect taxes and this continued till 1789. The collection of taxes was considered by people to be a source of injustice.

However, the tax system completely transformed after the French Revolution. Taxes on incomes were started after the French Revolution. The tax system which is currently in use was anciently developed in the twentieth century. Taxation earlier aimed at assuring "the maintenance of the public force" and "the expenditures of the administrations", but now the aim has changed and now the tax system focuses at better services to public and an equitable distribution of income.

The discussions to create an income tax started from the middle of the nineteenth century. In 1872, a tax on incomes from real estate was created. A scholar called Gambetta proposed to create a tax on all incomes which was to be proportionately charged. But, as a result, the only change was that a tax on incomes from the stock exchange was created. In 1917, a tax on income was created after the Great War.

Later, in 1945, a family quotient was created. As of now, there are various controversies because of the development of the E.U. and globalization. Thus, it now becomes necessary to take into account the legally justified methods through which payment of taxes can be avoided.

HISTORY OF INCOME TAX IN INDIA

Since ancient times tax on income has been levied. According to Kautilya, the assessee-assessor relationship between the subjects and the King was based on dharma; taxes were collectd from the public and in turn, the King had a sacred duty to protect its citizens. In case the King failed in his duty, the subjects had a right to stop paying taxes.

The first Income-tax Act was introduced in February, 1860 by James Wilson, in order to refill the British treasury. After that, a lot of changes were made in the Income Tax provisions but this remains the base of the taxation system till now. Governor General’s assent was received on July 24, 1860, and then the act came into effect immediately. The act of 1860 consisted of 21 parts which were divided into about 250-260 sections.

Income was classified under four schedules: i) income from landed property; ii) income from professions and trade; iii) income from securities, annuities and dividends; and iv) income from salaries and pensions.

About Rs. 1.50 crores were collected in the first year after the tax came into force. In 1865, this Act expired.

New Income Tax Acts were introduced in 1918 and 1922. In the year 1939, the Income Tax Act, 1922 was substantially amended and then finally a new act titled ‘Income-tax Act, 1961’ was passed and it came into force from April 1, 1962. Since then, various amendments have been made to this Act.

INCOME TAX RATES IN INDIA AND FRANCE: DIFFERENCE

FRANCE INCOME TAX RATES - 2013

The tax that is charged on income earned by individuals per annum is called impôt sur le revenu (IR). After total income is determined then net income is calculated after applying deductions (if allowed) and then finally IR is calculated on this.

If an individual is a resident in France, whether he/she has French nationality or not, he/she will be taxed on his/her total net income. Non-residents are taxed only for that part of their income which they have earned from French sources. For every "fiscal household", i.e. the family unit tax is charged. An individual who is a tax resident in France is taxable on his/her worldwide income, irrespective of their nationality.

"revenu fiscal de reference" which is the amount of taxable income is not the income received by the household per annum. Instead, the RFR is determined by dividing the income by the number of "parts" in the fiscal household (1 part for every adult, 1 part for the first child, and 0.5 parts for each successive child). Then, a standard deduction is deducted and further deductions that the taxpayer may have claimed in the assessment year are also deducted.

INDIA INCOME TAX RATES 2014-15

NET INCOME RANGE FOR RESIDENT WOMAN BELOW 60 YEARS ON THE LAST DAY OF THE PREVIOUS YEAR

NET INCOME RANGE FOR RESIDENT SENIOR CITIZEN

NET INCOME RANGE FOR SUPER SENIOR CITIZEN

NET INCOME RANGE FOR ANY OTHER PERSON EXCLUDING COMPANIES AND CO-OPERATIVE SOCIETIES

INCOME TAX RATES

Up to 200,000

Up to 250,000

Up to 500,000

Up to 200,000

NIL

200,001–500,000

250,001–500,000

-

200,001–500,000

10%

500,001–1,000,000

500,001–1,000,000

500,001–1,000,000

500,001–1,000,000

20%

Above ₹ 1,000,000

Above₹ 1,000,000

Above 1,000,000

Above 1,000,000

30%

DIFFRENCE IN EXEMPTIONS

FRANCE - EXEMPT PERSONS

 

Due to socio-economic reasons, exemptions are granted in France and relate to:

 

low income individuals whose income net of professional expenses does not exceed €8,440 or €9,220 if their age is above 65 as on December 31st, 2010

those who receive wages, salaries, pensions and annuities and whose total income did not exceed €6,885 (for the assessment year 2010)

 One important thing that must be kept in mind is that the second exemption may not be combined with the first exemption.

 

INDIA – EXEMPT PERSONS

Even in India, exemptions are provided by the Government and existing exemptions and deductions are provided under Income Tax Act, 1961. 

DIFFERENCE BETWEEN TAXABLE INCOME IN FRANCE AND INDIA

TAXABLE INCOME IN FRANCE

These are the seven categories of income that are liable to pay personal income tax:

Business profits

Non-commercial profits

Agricultural profits

Income from real property

Wages, salaries, pensions and annuities

Investment income

Capital gains

TAXABLE INCOME IN INDIA

In India for the computation of total income and charging tax on it, income from different source is classified as under:

Salaries

Income from House Property

Profits and Gains of business or profession

Capital Gains

Income from Other Sources

The five sources mentioned above are mutually exclusive. If any of the income mentioned above falls under one head it cannot be considered to be under another head. Income under each head has to be computed as per the provisions under that head. Then, subject to provisions of set off of losses between the heads of income, the income under various heads has to be added to arrive at a gross total income. From this gross total income, deductions under Chapter VIA are to be allowed to arrive at the total income.

TAXABLE INCOME FOR DOMICILES AND NON-DOMICILES: A COMPARITIVE STUDY

FRANCE:

Under Article 4A CGI, all the individuals who are domiciled in France are taxable on all of their income whether it is of French or foreign origin. Persons who are not domiciled in France are only taxable on their income from sources which are French.

DOMICILE (FOR TAX PURPOSES: TAX HOUSEHOLD RULE)

Under Article 4B CGI (Code general des imports), persons are deemed to be domiciled in France for tax purposes if:

Home is in France;

Main place of abode is in France;

They carry on a professional activity in France, salaried or not, unless they can prove that it is a secondary activity;

Have the centre of their economic interests in France.

State employees who are performing their duties and are on an assignment in a foreign country and they are not liable to personal tax on their overall income in that foreign country, for tax purposes are also deemed to be domiciled in France.

Personal income tax is assessed on the "tax household" basis:

the family entity consisting of a single person, two partners who have concluded a civil solidarity pact or spouses, whatever their marital property regime, and their children or other dependents. The tax base therefore generally comprises the total income of the various members of the tax household.

TAX TREATMENT FOR PERSONS WHO ARE DOMICILED IN FRANCE

With no regard to their nationality persons domiciled in France for the purpose of tax are taxable on their income from worldwide

TAX TREATMENT OF PERSONS NOT DOMICILED IN FRANCE

With subject to provisions of tax treaties in France for the avoidance of double taxation with no regards to their nationality, persons who are not domiciled in France are taxable in their income from only the French sources.

Under Article 164(B) of CGI only the following are deemed to be income from French sources:

income from real property that is situated in France or from rights relating to such property

income from French transferable securities and all other securities invested in France

income from business concerns situated in France;

income from professional activities, salaried or not, or from for-profit operations carried on in France

capital gains on the transfer for valuable consideration of real property or rights of all kinds and profits derived from transactions carried out in particular by property dealers, where they relate to businesses operated in France and to properties situated in France, property rights relating to them or shares in unlisted companies whose assets mainly consist of such property and rights

capital gains on the transfer of shares in companies having their registered office in France

Taxpayers who are domiciled outside France and who receive income from France or have one or more dwellings in France have to file a principle tax return.

Other incomes under Article 164(B) of CGI, the following are also deemed income from French sources where the payer of the income has his tax domicile or is established in France:

Pensions and annuities

income received by inventors or in respect of copyright and all income derived from industrial or commercial property and similar rights

Amounts paid in consideration of services of any kind rendered or used in France

INDIA:

Under the Indian Constitution Central Government is empowered to levy taxes and collect them. Anyone whose income exceeds the maximum limit of exemption that is set should be chargeable to that income as per the rates prescribed in Income Tax Act. Income that is of such nature should be paid on the total income of last year and in the relevant year of assessment. Total income of individuals in India is determined on the basis of residential status in India.

STATUS OF RESIDENT OR NON-RESIDENT

The income tax that has to be paid by an individual is determined on the basis of residential status.

RESIDENT: Under section 6(1) an individual can be termed as a "resident" if he stays in the prescribed period during the previous year, i.e. from 1st April to 31st March either:

If he is India in the previous year for a period of 182 days or more

If he is in India for a period of 60 days or more during the previous year and 365 days or more during 4 year immediately preceding the previous year.

Two exceptional cases are there where 182 days are necessary:

For taking employment outside India or a member of-crew of a ship

Indian citizen or a person of Indian origin comes to visit India.

NON-RESIDENT: If none of the conditions mentioned above i.e, a) and b) are fulfilled an individual is determined as a non-resident.

Non residents are liable to tax in Indian source income, including:

Interest, royalty and fees for technical services paid by an Indian resident

Salary paid for services rendered in India

Income arises from business connection or property in India

If a choice is to be made between two conditions whichever is beneficial to the assessee should be used:

The tax is to be deducted at the rate prescribed in the Act

Rate specified in Double Taxation Avoidance Agreement

Any person making a payment to any non-resident shall be liable to deduct tax at the rates specified in the Act.

INCOME FROM DIVIDENDS

FRANCE – INCOME FROM DIVIDENDS

 

French or foreign companies which distribute their income and are liable to corporation tax or an equivalent tax and when such income is received by individuals it is liable to personal income tax after taking into consideration the deductions that a company is entitled to. Moreover, if the registered office of the company is in France, an EU Member or in a State or territory which has concluded a tax treaty with France, a 40% allowance and an annual fixed allowance is also allowed.

 

Regardless of the tax domicile of the recipient of this income, if a company which is based in France distributes its income, it will be liable to a 50% mandatory flat-rate withholding tax when it is paid in a non-cooperative country or territory outside France.

 

INDIA – INCOME FROM DIVIDENDS 

A resident company in India would be paying an additional tax called dividend tax on the declared, distributed or paid dividend. Dividends tax is charged on the company and not charged on the hands of the shareholders. Within a period of 14 days of declaration or distribution, such tax must be deposited, whichever is earlier. On account of tax on the income from dividends, no relaxations are not allowed to the company. While computing the income through dividend, no deduction in respect of any payments or grant will be allowed. High dividends are generally not declared by companies in India as they are supposed to pay to the shareholders as well as to the Government (as dividend tax). So, the companies retain their profits. This helps the companies to survive during economic downturn and they can also expand when the conditions of market are favorable.

DETERMINATION OF TOTAL INCOME IN FRANCE AND INDIA

FRANCE - DETERMINATION OF TOTAL INCOME

 

We know that the taxable income in France includes the total net income of the members added together who belong to the same tax household be it of any category.

 

So, tax is levied basically on the actual disposable income during the year. But under certain conditions, exceptional or deferred income can be taxed in such a way which removes the progressive taxation impact and is thus helpful to the taxpayers.

 

Certain personal expenditures of the tax household, for the economic or social persons, are treated for tax purposes either as deductions/ reductions or tax credits.

INDIA - DETERMINATION OF TOTAL INCOME

 

Total income of a previous year is taken as the base to charge Income Tax in India at the rates prescribed for that particular assessment year. The assessment year commences from 1st April of every year and continues over a period of 12 months ending on 31st March of the next calendar year. The financial year just before the assessment year is called the ‘previous year’.

 

The ‘tax-payer’ who is a resident is charged to income-tax on his income which he has earned worldwide, subject to double taxation relief if such relief exists. As far as a non-resident is concerned, income-tax is charged only on income that is received in India or which accrues or arises in India or which is deemed to be received, accrued or arisen here only.

 

Income from various sources is classified under the following heads in order to calculate the taxable income and then finally the amount of income-tax that is to be paid:

 

Capital Gains

Income from House Property

Income from Other Sources

Profits and Gains of business or profession

Salaries

 

There are separate provisions of each head and income under each head is computed on the basis of the provisions of that particular head. The income under different heads has to be added to calculate a gross total income after taking into consideration all the losses. Deductions under Chapter VIA are allowed from this gross total income and then we arrive at the total income.

CONCLUSION

Both India and France are known to have imposed income tax on their subjects since centuries ago. Broadly speaking, there are some stark differences between the Income Tax Acts of both the countries while there are staggering similarities too. We see that in France, tax is charged on an income household and thus if the total taxable income of a household goes above the exempted limit then in a way the whole household pays tax. Whereas in India, tax is levied on the income earning individual only and not on the household. It must not be ignored that unlike France which is a member of the European Union and is hence able to give more deductions to more people, India is not a member of such a body and industries have reluctant distribution of dividend income because it is highly taxable as compared to other countries. Hence, we see industrial disparity towards nations like France. This being a major point noticed by the authors, we conclude this project report here.