Briefly explain the following basic concepts related to NI:
Factor Payment (Income) vs. Transfer Payment (Income)

Factor Payment vs. Transfer Payment (or Factor Income vs. Transfer Income)

(i) Factor Payment. Payment made to a factor of production in return for rendering productive (or factor) services is called factor payment. This is reward or compensation to factors of production for productive services rendered by them in the production process and for them these are factor incomes. Examples are rent, wages, interest and profit. Income of land is rent, of labour wages, of capital interest and of enterprise profit. Without production we cannot conceive of factor income. All factor payments are included in national income.
Factor incomes earned by factors of production and factor payments made by an enterprise to factors for rendering productive service are, in fact, the same. The former is viewed from the side of factors of production and the latter from the side of an enterprise.
(ii) Transfer payment. Payment which is received without rendering any service or good in return is called transfer payment (or transfer income). These are unilateral payments which have no obligation of any return. For recipients these are unearned incomes. These are received for free, without having to make any present or future payments in return. Transfer payments are basically welfare-oriented expenditure of the government. This is a receipt concept as compared to factor income which is an earning concept. Thus transfer payment is the payment which one gets without adding anything to the current flow of goods and services. Examples are: old age pension, unemployment allowance, gifts in cash, scholarship amount, subsidies, taxes (compulsory transfer payment), etc. All transfer payments (incomes) are kept out (excluded) of national income because no corresponding goods and services are produced against such payments.
Mind, only factor payments (incomes) are included in estimation of national income.
Both factor payments and transfer payments are compared below.