How is NI measured by Income Method?

Income method is that method which measures NI from the payment point of view where payments is made in form of wages, rent, interest and profit to the primary factors of production i.e. labour, land, capital and enterprise respectively for their productive sevices in an accounting year. The steps involved are

1st Step

First of all the various producing enterprise in a country are classified into

a) Primary sector

b) Secondary sector

c) Tertiary sector

2nd Step

All the factor payments are classified as follows:

a) Income from work - wages and salary

b) Income from property- Rent and Interest

c) Income from profit- Dividend, undistributed profit and corporate taxes

d) Mixed Income- income of self employed like doctor, advocate etc.

3rd Step

Domestic factor Income is estimated by adding all the factor payments of all enterprises of all the sector

4th Step

Net income earned from abroad is estimated and added to domestic Income to arrive at national product, which is the national income.

Thus

Wage

+ Salary

+ Profit

+ Rent

+ Interest

+ Mixed Income

= NDP_PC = Domestic Income + NFIA

= NNP_PC = National Income