Precautions for income approach
While estimating national income through income method, the following precautions should be undertaken.
- Transfer payments such as gifts, donations, scholarships, indirect taxes should not be included in the estimation of national income.
- Illegal money earned through smuggling and gambling should not be included.
- Windfall gains such as prizes won, lotteries etc. is not to be included in the estimation of national income.
- Receipts from the sale of financial assets such as shares, bonds should not be included in measuring national income as they are not related to generation of income in the current year production of goods.
Thus NY = W + I + R + 1