Question

Ms. Reeta D’Costa, retired from the post of Income Tax Commissioner in the year 2023.
Apart from her pension, she also receives the following from various sources: - Rental income from a flat she owns.
- Interest income from her fixed deposits.
- Money sent by her children settled abroad.
Identify and classify her monthly incomes into 'factor income' and 'transfer income', with valid reasons.

Hint:

Remember: Factor income is earned through the use of productive factors, while transfer income involves income received as a gift or transfer with no productive input.

Answer 1

Step 1: Definition of Factor Income.
Factor income refers to the income earned by providing productive services or factors of production, such as land, labor, capital, and entrepreneurship. It includes wages, rent, interest, and profit that arise from production activities.
Step 2: Definition of Transfer Income.
Transfer income refers to income received without providing any productive services in return. It includes gifts, pensions, and remittances, as they are transfers of income from one individual to another without any productive activity involved.
Step 3: Classifying the Income Sources.
- Rental income from a flat she owns: This is factor income, as it is earned from the use of her property (land) and involves the productive use of her asset.
- Interest income from her fixed deposits: This is factor income, as it is earned from the capital she has invested in the form of fixed deposits.
- Money sent by her children settled abroad: This is transfer income, as it is a remittance from her children without any exchange of goods or services.