The following precautions should be taken while calculating national income using income method:

(i) All kinds of transfer payments are not to be included in the national income. This is so be­cause these are unilateral payments.

(ii) The value of the output kept for self-consumption and the imputed rent of the self-occupied house are included in the national income.

(iii) Windfall gains like income from lottery are not included in the national income.

ADVERTISEMENTS:

(iv) Income tax on personal income is a part of compensation of employees. This should not be separately included in the national income.

(v) Death duty, wealth-tax, capital gains tax etc. are paid out of past saving and assets. These are not related to current flows of goods and services; therefore, they are not the part of national income.

(vi) Income from the sale of second hand goods is not included in the national income because it does not relate to the current flow of goods and services.

(vii) Income of gamblers, smugglers, thieves etc. is not included in the national income because these are not the part of regular productive activities.

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(viii) Financial transactions are not included in the national income such as sale of shares, bonds and so on.