Simple Interest Calculator
Calculate simple interest and total amount for any principal, interest rate, and time period. Includes a year-by-year breakdown and a comparison against compound interest to show the difference in returns.
Loan / Deposit Details
Maturity Amount (SI)
₹1.4 Lakh
Total Interest: ₹40,000
Principal
₹1,00,000
SI Interest
₹40,000
Maturity
₹1.4 Lakh
vs. Compound Interest (annual)
+₹6,933 more with CI
Year-by-Year Schedule
| Year | Interest | Balance |
|---|---|---|
| 1 | ₹8,000 | ₹1,08,000 |
| 2 | ₹8,000 | ₹1,16,000 |
| 3 | ₹8,000 | ₹1,24,000 |
| 4 | ₹8,000 | ₹1,32,000 |
| 5 | ₹8,000 | ₹1,40,000 |
How It Works
Simple Interest (SI) calculates interest only on the original principal — unlike compound interest, which earns interest on accumulated interest. SI is linear: the same amount of interest is earned every period. In India, simple interest is used for most personal loans and car loans (flat rate), short-term borrowings, and some government schemes. However, most bank savings products (FD, RD, savings accounts) and mutual funds use compound interest. A flat-rate loan quoted at 10% p.a. is significantly more expensive than a reducing-balance (compound) loan at 10% p.a. — the effective rate on the flat loan is approximately 18% p.a. Simple interest is also used in legal interest calculations under the Indian Contract Act.
Formula
Simple Interest (SI) = P × R × T / 100. Total Amount = P + SI. Where P = Principal, R = Annual Rate (%), T = Time (years).
Frequently Asked Questions
What is simple interest and how is it calculated?
Simple Interest = (Principal × Rate × Time) / 100. It is the interest earned only on the original principal — the interest itself does not earn further interest. Example: ₹10,000 at 8% p.a. for 3 years → SI = 10,000 × 8 × 3 / 100 = ₹2,400. Total amount = ₹12,400. The interest is flat at ₹800/year regardless of how much has accumulated.
What is the difference between simple and compound interest?
Simple Interest is calculated only on the principal throughout the entire period. Compound Interest is calculated on the principal PLUS accumulated interest — interest earns interest. For the same principal, rate, and time, compound interest always yields more than simple interest (the difference grows with time). Example: ₹1 lakh at 8% for 10 years — SI gives ₹80,000 interest; CI (annual compounding) gives ₹1,15,892 interest.
When is simple interest used in practice?
Simple interest is used in: flat-rate vehicle and personal loans (common in NBFCs), short-term borrowings between individuals, some government schemes and post office deposits, legal interest on delayed payments under the Indian Contract Act (typically 6–9% SI), and some microfinance lending products. Most bank loans now use reducing balance (compound) interest, which is cheaper at the same stated rate.
What is the difference between flat rate and reducing balance rate?
A flat rate (simple interest) is calculated on the original principal throughout the loan tenure. A reducing balance rate is calculated on the outstanding principal, which decreases with each EMI payment. A flat rate of 10% p.a. on a ₹5 lakh 3-year loan gives the same interest every month. The reducing balance equivalent (effective rate) of 10% flat is approximately 18% p.a. — meaning borrowers pay significantly more on flat-rate loans despite the lower-sounding number.
What is the Rule of 72?
The Rule of 72 is a mental math shortcut for doubling time: years to double = 72 ÷ interest rate. At 8% p.a.: 72 ÷ 8 = 9 years to double with compound interest. For simple interest, doubling time = 100 ÷ rate. At 8% SI: 100 ÷ 8 = 12.5 years to double. The Rule of 72 works for compound interest — simple interest takes longer to double than the Rule of 72 predicts.
How is interest taxed in India?
Interest from bank deposits (FD, savings accounts, RD) is taxable as 'Income from Other Sources' at your applicable income tax slab. TDS is deducted at 10% if total bank interest in a year exceeds ₹40,000 (₹50,000 for senior citizens). You can submit Form 15G (non-senior) or 15H (senior citizen) to avoid TDS if total income is below the taxable limit. Interest on PPF, Sukanya Samriddhi, and sovereign bonds has different tax treatment.