Some of the differences between factor income and transfer income are as follows:
The difference between the two is whether or not the income (payment) received is for rendering productive service.
Payment received in exchange for rendering productive service is factor income whereas the one received without providing any service (or good) in return is transfer income. Mind national income includes only factor incomes and not transfer incomes.
For further clarification, the two concepts are compared below:
Factor Payment (Income):
1. It comprises rent, wages, interest and profit.
2. It is received in return for rendering productive service.
3. It is an earned income (earning concept).
4. It is bilateral payment.
5. It is included in national income.
Transfer Payment (Income):
1. It comprises gifts, subsidies, donations, scholarships, etc.
2. It is received without providing any good or service in return.
3. It is an unearned income (receipt concept).
4. It is unilateral payment.
5. It is not included in national income.