The following precautions need to be taken for correct estimation of national income by expenditure method:
(i) To avoid double counting, expenditure on all intermediate goods and services is excluded. For example, purchase of vegetables by a restaurant, expenses on electricity by a factory.
(ii) Government expenditure on all transfer payments such as scholarship, unemployment allowance, pension, etc.
(iii) Expenditure on purchase of second-hand goods is excluded from national income because this type of expenditure is not on currently produced goods.
(iv) Expenditure on purchase of old shares/ bonds or new shares/bonds, etc., is excluded because it is not the payment done for goods and services currently produced. It shows mere transfer of property from one person to another.
(v) Imputed expenditure on own account output (e.g.-owner occupying his house, selfconsumed output by a farmer) should not be included.