Following are the precautions that must be taken while estimating national income by value added method or product method : 

1. Double counting – Value added equals value of output less intermediate cost. There is a possibility that instead of counting ‘value added’ one may count value of output. You can verify by taking some imaginary numerical example that counting only values of output will lead to counting the same output more than once. This will lead to overestimation of national income. 

There are two alternative ways of voiding double counting : 

(a) count only value-added and 

(b) count only the value of final products. 

2. Second-hand goods – Sale of second-hand goods should not be included in the national income because it does not represent current year’s production. However, any brokerage or commission paid to facilitate the sale of secondhand goods is a part of national income. 

3. Production for self-consumption – Production for self-consumption should be included in the national income because such production is a part of current year’s production. Hence, imputed rent of owner occupied building is a part of national income. 

4. Production from illegal activities – Production from illegal activities like smuggling, theft, gambling etc. should not be included in the national income because no accounts are maintained for such production.