Question

Show how personal income and personal disposable income are interrelated.

Answer 1

1. Personal disposable income is derived from personal income. It shows what remains after fulfilling financial obligations like taxes.
2. A rise in personal income (with taxes constant) will increase Personal disposable income, giving more room for consumption or saving.
3. If taxes increase, even a high personal income might result in a lower Personal disposable income.

Example: If an individual earns,

• Personal Income (PI): ₹100,000
• Direct Taxes Paid: ₹20,000
• Non-tax Payments (like fines, fees): ₹5,000

Then,

PDI = ₹100,000 − ₹20,000 − ₹5,000 = ₹75,000

Personal disposable income is the usable portion of personal income. Their interrelationship highlights how much of a person’s total income is actually available for day-to-day life and future financial planning.