What is Disposable Income?

Disposable Income is the money left over from an individual’s paycheck after paying local, state, and central taxes. It’s also referred to as disposable personal income or net pay. A household’s disposable income includes earnings plus various state benefits and capital income.

  • After all income taxes are removed, a person’s disposable income is the amount of money left over.
  • Disposable income can be used to calculate household financial reserves and money available for spending on goods and services.
  • Analysts use it to assess consumer spending, payment capabilities, likely future savings, and the general health of a country’s economy.

Formula for Disposable Income

Disposable Income = Personal Income – Personal Income Taxes.  

For Example:- Suppose a family’s aggregate income is RS150,000, along with an effective tax rate of 27%. The disposable income for the family will be Rs 109,500 [Rs150,000 – (27% x Rs150,000)].

 

 

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