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Economic and Business Environment · National Income Accounting and Related Concepts

Personal Income, Disposable Income and Per Capita Income

Updated 11 October 2026 · Fact-checked

Personal income is the income actually received by individuals and households from all sources. Disposable income is personal income minus personal direct taxes. Per capita income is national income divided by population. To solve numericals, start from National Income (NNP at factor cost), adjust step by step, then divide by population where asked.

Understand Related Income Measures

National income tells you what the whole country earns. But the whole country's earning is not what people actually get in hand. Some income is kept back by companies and the government. Some money reaches people that they did not earn from work. Related income measures fix this gap.

Personal income (PI) is the total income actually received by individuals and households from all sources in a year. Start with national income. Remove the parts that never reach households: corporate profit tax, undistributed profits (retained earnings) and social security contributions. Add transfer payments, such as pensions and scholarships, which people receive without producing anything in that year.

Disposable income (DI) is what households can freely spend or save. You get it by subtracting personal direct taxes (such as income tax) from personal income. Some textbooks also deduct fines and fees paid to the government as compulsory payments. Do this only if the question gives them. It is the most useful measure for studying consumption and saving.

Per capita income is the average income per person. You divide national income by the total population. It is an average, so it does not show how income is shared between rich and poor people. It is used to compare living standards across countries or years.

Keep the order in mind: National Income → Personal Income → Disposable Income. Each step takes you closer to the money in the household's pocket. Disposable income is then split into consumption and saving.

Key rules to remember

Personal income
PI = National Income − Undistributed profits − Corporate tax − Social security contributions + Transfer payments
National Income here means NNP at factor cost. Transfer payments include pensions, scholarships and unemployment allowance. Some questions also ask you to add or subtract only the items given.
Disposable income
DI = PI − Personal direct taxes
Personal direct taxes mean taxes such as income tax. Some textbooks also deduct fines and fees paid to government, but deduct them only if the question gives them.
Uses of disposable income
DI = Consumption + Saving
Use this to find saving if consumption is given, or the reverse.
Per capita income
Per capita income = National Income ÷ Population
Keep units consistent. If income is in ₹ crore and population in lakh, convert before dividing.

How to solve Related Income Measures questions

Use this method for any question on personal, disposable or per capita income.

  1. 1Read the question and mark what is asked: PI, DI, saving or per capita income.
  2. 2Identify the starting figure. It is usually National Income (NNP at factor cost). If you are given NNP at market price or GNP, convert it first using the methods from the national income chapter.
  3. 3List each item given and tag it: deduct (corporate tax, undistributed profit, social security contributions), add (transfer payments), or ignore (items that do not enter the PI formula). Depreciation is one such item: national income is already net of depreciation, so do not adjust for it again.
  4. 4Compute personal income step by step, writing each line.
  5. 5Subtract personal direct taxes to get disposable income.
  6. 6If asked, split DI into consumption and saving, or divide national income by population for per capita income.
  7. 7Write the unit (₹ crore, ₹ per person) and re-check the arithmetic.

Quickest way: Deduct, add, then deduct for DI shortcut

When to use it: Use when the question gives a list of items and National Income, and asks for PI or DI.

  1. Write NI at the top.
  2. Subtract the three items that stay with firms or the government: undistributed profits, corporate tax, social security contributions.
  3. Add transfer payments once. This gives PI.
  4. Subtract personal direct taxes only if the question asks for DI.
  5. Ignore any other item, such as depreciation, because NI is already net of it.
  6. For per capita income, divide NI by population, ignoring PI and DI.

Common mistakes in Related Income Measures

  • Subtracting transfer payments instead of adding them to get personal income.

    Students treat every item in the list as a deduction.

    Fix: Remember that transfers reach households without being earned from production, so they are added to national income.

  • Using GDP or NDP at market price as the starting point for PI.

    Students do not check which measure the question gives.

    Fix: First convert to NNP at factor cost, which is national income, and then start the PI adjustments.

  • Deducting personal tax to get personal income.

    Confusion between PI and DI.

    Fix: Personal direct taxes are deducted only after PI is found, to reach DI.

  • Dividing PI or DI by population and calling it per capita income.

    The name sounds general.

    Fix: Per capita income means national income per person unless the question says per capita personal or disposable income.

  • Mixing units, such as ₹ crore with population in lakh.

    Students rush to divide.

    Fix: Convert both to the same unit. 1 crore = 100 lakh. Write the unit with the answer.

  • Treating per capita income as showing how income is distributed.

    It sounds like the income of every person.

    Fix: State that it is only an average and does not show inequality.

Worked examples

Example 1

From the following data (₹ crore), find personal income and disposable income. National income = 8,000; undistributed profits = 300; corporate tax = 200; social security contributions = 100; transfer payments = 600; personal direct taxes = 500.

Show the solution
  1. PI = National Income − Undistributed profits − Corporate tax − Social security contributions + Transfer payments.
  2. PI = 8,000 − 300 − 200 − 100 + 600.
  3. 8,000 − 300 = 7,700; 7,700 − 200 = 7,500; 7,500 − 100 = 7,400; 7,400 + 600 = 8,000.
  4. So PI = ₹8,000 crore.
  5. DI = PI − Personal direct taxes = 8,000 − 500 = 7,500.

Answer: Personal income = ₹8,000 crore; disposable income = ₹7,500 crore.

Example 2

The national income of a country is ₹60,00,000 crore and its population is 120 crore persons. Disposable income of households is ₹45,00,000 crore, of which ₹36,00,000 crore is spent on consumption. Find (a) per capita income and (b) saving.

Show the solution
  1. (a) Per capita income = National Income ÷ Population.
  2. = ₹60,00,000 crore ÷ 120 crore persons.
  3. The unit 'crore' in the numerator and the denominator cancels, so you divide 60,00,000 by 120 = 50,000.
  4. So per capita income is ₹50,000 per person.
  5. (b) Saving = DI − Consumption.
  6. = ₹45,00,000 crore − ₹36,00,000 crore = ₹9,00,000 crore.

Answer: Per capita income = ₹50,000 per person per year; saving = ₹9,00,000 crore.

Exam tips

  • In written answers, begin with the formula, then substitute values line by line. Marks are given for the method.
  • If a question asks for the difference between personal and disposable income, give two or three points: meaning, taxes, and use, and add a one-line formula.
  • Check the starting measure. If NNP at market price is given, subtract net indirect taxes to reach national income before using the PI formula.
  • Keep a standard list of what to add and what to deduct so that you do not miss an item.
  • Mention the limitation of per capita income, that it is an average, when you define it.

Practice questions from National Income Accounting and Related Concepts

Related Income Measures: frequently asked questions

What is the difference between personal income and disposable income?

Personal income is the total income received by households from all sources, including transfers. Disposable income is what remains after paying personal direct taxes. Disposable income can be spent or saved.

What is the formula for disposable income?

Disposable income = Personal income − Personal direct taxes. It also equals consumption plus saving. Compute personal income first if it is not given.

How do I calculate per capita income?

Divide national income by the total population of the country for the same year. Make sure both figures use compatible units. The result is the average income per person.

Why are transfer payments added to get personal income?

Transfer payments such as pensions and scholarships are received by households without any current production. They are not part of national income, but households do receive them. So they are added to reach personal income.