Q.Write a short note on: Disposable Income

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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