Net income of an individual is one of the most important aspects that are being considered when an institution is considering lending to someone. It must be noted that the maximum amount that a person can get from a lender depends on his eligibility and the purpose of the loan. The eligibility is accessed based on the net income of that individual.
How is Net Income Calculated?
It is the amount that that is left after deducting the statutory deductions from the gross salary of the individual. The statutory deductions include the contribution towards provident funds, pension fund, professional tax, income tax, etc. So we can infer that the net income is the income that can be actually enjoyed by the individual at the time.
To calculate the eligibility of an individual we consider that maximum percentage of the this income of the individual that can be deducted towards repaying any existing or proposed loan. The percentage differs from Bank to Bank, product to product and also with different slabs of net income.
Example
For example, for calculating eligibility of home loan, we can consider the EMI amount to be 50% for this income up to Rs.50000 and 40% beyond that. This is considered to leave some amount in the hands of the borrower to fund his daily expenses.
A very usual financial term which is used quite often. It might be an easy term if understood but is usually misinterpreted. The article can be referred when looking what exactly net income is. Net income is the income which the individual actually enjoys after all the deduction like the PPF, income tax.
Net income is very self explanatory term. The people who are from commerce background can easily understand this. It is used in financial accounts of the companies to know the exact profit. If any individual is maintaining a budget book then he can also calculate net income to check balance.
Though not a new term but the article still conveyed the best meaning to the individual. I do wish this article could have explained the deductions and allowances more clearly especially about HRA ,DA and taxes to make the topic more descriptive. Apart from my suggestions this article is very much clear in what it has to convey.
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