Simple Interest Calculator

Where simple interest still shows up in India

Textbooks present simple interest as the beginner’s version of compound interest, as though nobody used it. In India it is everywhere, just not at the bank counter for deposits.

Gold loans. Muthoot, Manappuram and the bank branches all quote a rate per annum, and on a bullet-repayment loan the interest is worked out on the amount lent for the months it ran. Borrow ₹2 lakh against bangles at 12 percent and the meter runs at ₹2,000 a month. Pay the interest monthly and the principal at the end, and the total cost is exactly what this calculator shows.

Hand loans and moneylenders. Nobody in a village or a market says “24 percent per annum”. They say “do rupaye saikda”, two rupees per hundred per month. That is 2 percent a month, 24 percent a year, simple. One rupee per hundred is 12 percent, three is 36. Multiply the monthly figure by 12 and enter it as the rate here; the “interest per month” output will match the amount the lender expects on the first of every month.

Chit funds. A registered chit does not charge interest as such, but the arithmetic people use to judge whether they got a good deal is simple interest: the discount forgone against the number of months to the end of the chit.

Interest on late payment to the government. GST under Section 50, TDS under Section 201(1A), advance tax under 234B and 234C. All simple, all per month or per day, none of them compounding. More on these below.

FD and RD premature closure. When you break a deposit early, the bank recalculates at the lower card rate for the period it actually ran, and the penalty is a flat deduction from the rate, not a compounding one. The calculation of what you lose is simple-interest arithmetic on the rate difference.

What is not simple interest: your home loan, your car loan, any EMI product on a reducing balance. Those need the EMI calculator. And an FD you hold to maturity compounds quarterly, which is the FD calculator.

₹2 lakh at 12% for two years: the same ₹2,000 every month

The formula:

I = P × R × T / 100

P is the principal, R the yearly rate in percent and T the period in years. Months go in as fractions: 3 months is 0.25, 18 months is 1.5.

With the defaults:

I = 2,00,000 × 12 × 2 / 100
I = 48,000

Interest	₹48,000.00
Total repayable	₹2,48,000.00
Interest per month	₹2,000.00
If it compounded yearly	₹2,50,880.00
Compounding would add	₹2,880.00

The per-month line is the one to memorise, because it is how the lender thinks. Twelve percent a year is one rupee per hundred per month; ₹2 lakh is two thousand hundreds; so ₹2,000 a month, in month one and in month twenty-four alike. Interest never gets added to the principal, so the interest on interest that a compound calculation would charge is not there. That is the ₹2,880 in the last row: what the same loan would have cost if the ₹24,000 owed at the end of year one had been added to the balance and charged at 12 percent through year two.

Two things people type wrong here. The rate box wants a yearly figure, so a loan quoted at 1.5 percent a month goes in as 18, not 1.5. And the period box wants years, so a 9-month gold loan is 0.75, not 9.

Penalty interest on GST and TDS is per month or per day, never compounded

This is the use case that sends most people to a simple interest calculator in the second week of the month, when a return has been filed late.

GST, Section 50. 18 percent a year on the tax you pay through cash, counted day by day from the due date to the day the challan is actually paid. Interest is not charged on the part of the liability you settle with input tax credit. ₹1 lakh of cash liability paid three months late comes to about ₹4,500; enter 0.25 as the period and the tool gives ₹4,500 exactly, while the portal counts the actual days, so 92 days comes out a few rupees higher than 90. There is also a late filing fee per day, which is a separate charge and not interest at all.

TDS, Section 201(1A). Two different rates, and the difference catches people every year:

Failure	Rate	Counted from
Deducted late (or not at all)	1% a month	date it should have been deducted, to the date it was
Deducted, but deposited late	1.5% a month	date of deduction, to the date of deposit

Part of a month is a whole month. Deduct on 30 April, deposit on 8 May, and that is two months at 1.5 percent because April and May are both touched, nine calendar days notwithstanding. On ₹50,000 of TDS that is ₹1,500 for being a day past the 7th. The TDS calculator works out the deduction itself; this page is for what it costs to be late with it.

Advance tax, 234B and 234C. One percent a month simple, again with part months rounded up, on the shortfall. If your Form 16 employer deducted everything at source you will never see it; if you have FD interest, capital gains or freelance income on the side, you will.

None of these compound. The department does not charge interest on interest, which is why the “compounding would add” figure here is a curiosity rather than a threat.

Flat rate is simple interest in disguise

Walk into a two-wheeler showroom or a consumer durable counter and the finance desk will quote a “flat rate” of, say, 10 or 12 percent. That is simple interest on the full original amount for the full tenure, exactly this calculator’s formula, then divided into equal EMIs.

The catch is that you are repaying every month, so the amount you actually owe falls from the first EMI onwards, while the interest is still being computed as though you owed all of it until the last day. On a three-year loan, a 12 percent flat rate is somewhere around 21 to 22 percent on a reducing balance, the figure a bank would be legally obliged to print. A 10 percent flat is roughly 18 reducing.

If a dealer will only talk in flat rate, take the total interest they quote, put the loan amount and tenure into the personal loan calculator, and move the rate until the total interest matches. The rate you land on is what you are really paying, and it is the only number you should compare with the bank’s pre-approved offer sitting in your app.

The compounding column, and why it goes negative under a year

The last two outputs compare the simple-interest total against the same principal compounded once a year at the same rate. Over one year exactly, the two are identical. Over two years, compounding pulls ahead, as in the example above. Over ten, the gap is large enough to be the whole argument for leaving money in a cumulative FD rather than taking the interest out.

Under a year, the sign flips. Enter ₹1 lakh at 18 percent for 0.25 years and “compounding would add” reads a negative ₹275.34. That is not a bug. A rate compounded yearly and then applied for a quarter of a year is slightly less than a quarter of the yearly rate, because the compounding you were promised never had a chance to happen. Lenders know this, which is why every short-term charge in the country, gold loan, GST interest, the moneylender, is at simple interest: for anything under a year it is the higher of the two.

For a deposit that runs for years with quarterly or yearly credits, the compound interest calculator is the tool that matches what the bank will actually pay.