Which of the following statements is NOT correct?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Corporate tax is deducted from Personal Income to arrive at Personal Disposable Income.
Corporate tax is paid by firms and never reaches households, so it is deducted earlier, from national income to get personal income. From personal income only personal tax and non-tax payments are deducted.
Option (1) Personal Disposable Income = Personal Income − Personal tax payments − Non-tax payments. — True. This is the book’s formula for personal disposable income.
Option (2) Fines are an example of non-tax payments. — True. Fines are the book’s example of non-tax payments.
Option (3) Corporate tax is deducted from Personal Income to arrive at Personal Disposable Income. — False. Corporate tax is deducted from national income to get personal income.
Option (4) Income tax is an example of a personal tax payment. — True. Income tax is the book’s example of a personal tax payment.
NCERT (2026-27): “2.3 Some Macroeconomic Identities … Similarly, Corporate Tax, which is imposed on the earnings made by the firms, will also have to be deducted from the NI, since it does not accrue to the households. …” “2.3 Some Macroeconomic Identities … 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. …” |