Q.Write a short note on: Disposable income

Disposable income is the income actually available to households for spending and saving after paying direct taxes = personal income minus direct taxes.

Explanation

Personal disposable income is the part of personal income that remains with individuals or households for their own use after they have paid all personal direct taxes (such as income tax) and other compulsory payments to the government. It is the income over which people have full command — they can spend it on consumption or keep it as saving. Thus:

Disposable Income = Personal Income − Personal (direct) Taxes, and

Disposable Income = Consumption + Saving.

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Disposable income is the part of personal income that is actually available to households to spend or save after paying personal direct taxes. Thus Disposable Income = Personal Income − Direct Taxes, and it is allocated between consumption and saving.

Meaning

Personal income is the total income actually received by individuals and households from all sources. But not all of it is available for spending, because a part must be paid to the government as direct taxes such as income tax. The income left after paying these taxes is called disposable income or personal disposable income.

Formula

Disposable Income = Personal Income − Direct (Personal) Taxes.

After receiving disposable income, a household either spends it on consumption or keeps it as saving. Therefore:

Disposable Income = Consumption Expenditure + Saving.

Importance

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Disposable income (personal disposable income) is the part of personal income that households can actually spend or save after paying direct taxes. It is obtained as Personal Income minus direct (personal) taxes, and it is divided between consumption and saving.

Meaning

Disposable income is the income that is actually available to households to spend or to save, after they have paid their direct taxes such as income tax. It measures the real purchasing power in the hands of the people.

Personal Disposable Income = Personal Income minus Direct Taxes (and other compulsory payments to the government).

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