Personal income tax is a direct tax in the government budget. In national income accounting, it is deducted when moving from:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Personal Income to Personal Disposable Income
Income tax is a personal tax payment. It is deducted from personal income to get personal disposable income.
Option (1) National Income to Personal Income — Incorrect. From NI to PI, corporate tax is deducted, not personal income tax.
Option (2) Personal Income to Personal Disposable Income — Correct. PDI = PI − personal tax payments − non-tax payments.
Option (3) GNP to NNP — Incorrect. GNP to NNP takes out depreciation.
Option (4) NNP at market prices to National Income — Incorrect. NNPMP to national income takes out net indirect taxes.
This question uses National Income Accounting and Government Budget and the Economy together.
NCERT (2026-27): “2.3 Some Macroeconomic Identities … However, even PI is not the income over which the households have complete say. They have to pay taxes from PI. If we deduct the Personal Tax Payments (income tax, for example) and Non-tax Payments (such as fines) from PI, we obtain what is known as the Personal Disposable Income. Thus Personal Disposable Income (PDI ) ≡ PI – Personal tax payments – Non-tax payments. Personal Disposable Income is the part of the aggregate income which belongs to the households. They may decide to consume a part of it, and save the rest. …” “Chapter 5: Government Budget and the Economy – 5.1.2 Classification of Receipts: … Tax revenues, an important component of revenue receipts, have for long been divided into direct taxes (personal income tax) and firms (corporation tax), and indirect taxes like excise taxes (duties levied on goods produced within the country), customs duties (taxes imposed on goods imported into and exported out of India) and service tax. …” |