The correct option is 1 and 3 only.
Explanation
Corporate tax is a direct tax levied on the net income or profit of corporate entities. In the context of National Income Accounting, the distinction between income earned by factors of production (National Income) and income actually received by households (Personal Income) is crucial. Certain components, such as corporate taxes and retained earnings, are earned by the private sector but not received by households.
Statement-wise Analysis
- Statement 1 is Correct: Corporate tax is a direct tax imposed on the net income or profit earned by registered companies and corporations. It is levied by the central government in India.
- Statement 2 is Incorrect: Corporate tax does not accrue to households. It is the portion of a firm's profit that is paid compulsorily to the government. Only the post-tax profit distributed as dividends accrues to households. The tax component represents a leakage from the income stream before it reaches households.
- Statement 3 is Correct: To calculate Personal Income (PI) from National Income (NI), payments that are earned but not received by households must be subtracted. Since corporate tax is paid to the government out of the firm's profits, it is deducted from National Income to arrive at Personal Income.
The formula is:
Personal Income = National Income - Undistributed Profits - Net Interest payments made by households - Corporate Tax + Transfer Payments
Key Takeaway: Personal Income is the income actually received by households. Corporate Tax and Undistributed Profits (Retained Earnings) are parts of National Income that are deducted because they are earned by firms but not received by households.