What is Disposable Income

The Disposable income is the income which is left after all deduction and paying off the income tax which is further then left for saving the amount and spending it. It is also known as the Disposable personal income which is calculated by subtracting the payment of personal tax and income tax from the personal income. The disposable income generally cover all the necessary  expense of livelihood which includes expenses on food, expenses on shelter, expenses on transportation and other various medical expenses and bills. The disposable income is also known as the residual income which is calculated by deducting various taxes which can be direct tax and indirect taxes.

In other word we can explain the Disposable income as the residual income which is left in the hands of person after deducting all kinds of personal taxes and income taxes, the balance amount can be spent and saved by the person accordingly. The concept and the approach of disposable income is very important in ascertaining the financial status of the person. It is very important to understand that there is a difference between the disposable income and the discretionary income as the disposable income means the income which is calculated after deducting the income tax and other personal taxes while the discretionary income is residual or the left over income after deducting the income taxes, personal taxes and other daily livelihood expenditures like housing, food, shelter, medical, transportation and other expenses. The discretionary income can be further used for saving or spending as per the individual view point. And so it is very important for the individual to understand these terms so they don’t get confused in these terms at the time of filling the forms.

How to calculate your disposable income

This is the general and the common question which is often asked by the financial accounting persons. Calculating your disposable income is very easy and systematic, all you need to know is to:

  • Calculate your monthly income which should include all the income from different sources and means.
  • Then the next step will be to ascertain the total amount of tax which would be charged on your income, these taxes should include the income tax and the personal taxes also.
  • Third step is to calculate the monthly expenditures and livelihood expenses and bills.
  • After making all these calculations you should subtract the various expenses and taxes calculated from the total income which will give you the result known as the disposable income and this income is an important aspect to ascertain the status of your financial and monetary terms.

 

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