Factor Income 

The kind of income which is received by factors of production for rendering factor services in the production process.

It is received for providing factor services of labor , capital and enterprise. 

  • Factor income of normal residents of a country included in the national income. 
  • Examples- Rent, Wage , Interest and Profits. 
  • Factors of production are primary inputs , which is needed to produce goods and services.
It is a bilateral (two way traffic ) concept. 

Transfer Income 

It refers to income received without rendering any productive services in return.

  • It is not included in national income as it does not reflect any production of goods and services. 
  • It can be received either within the domestic territory of a country or from abroad. 
  •  Examples- Old age pension , Scholarship , Unemployment allowance , Pocket money ,.. 
  • Taxes received by government are the transfer income of the government as they are received without any productive service in return. Similarly , subsidies paid by the government are the transfer payments of government.
It is a unilateral (one-sided) concept.