In National Income (NI) accounts, Personal Income (PI) is defined as
[amp_mcq option1=”NI – undistributed profits – net interest payments made by households – corporate tax + transfer payments to the households from the government and firms” option2=”NI – undistributed profits – corporate tax + transfer payments to the households from the government and firms” option3=”undistributed profits – net interest payments made by households + transfer payments to the households from the government and firms” option4=”undistributed profits – net interest payments made by households – corporate tax” correct=”option2″]
This question was previously asked in
UPSC CAPF – 2018
Personal Income (PI) is the income received by households and non-profit institutions serving households before the payment of personal income taxes. It is derived from National Income (NI) by subtracting components of NI that are not received by households and adding income received by households that is not earned in the current production process (transfer payments). The standard formula is approximately: PI = NI – Corporate Income Tax – Undistributed Corporate Profits – Social Security Contributions + Transfer Payments. Option B closely matches this formula, excluding Social Security Contributions, which may not be included in all simplified representations or options. Option A includes “net interest payments made by households” as a subtraction, which is not standard in deriving PI from NI; interest paid by households is a disposition of income, not a deduction from earned income components of NI.