What is simple interest?
Simple interest is interest calculated only on the original principal for the whole period. It is never added back to the principal, so each year earns the same interest. It is the basis for hand loans, interest on security deposits, delayed-payment interest in many contracts, interest under Sections 234A/B/C of the Income-tax Act, and short-term bank deposits under six months.
Formula
SI = P × R × T ÷ 100, where P is principal, R the annual rate and T the time in years. Total amount = P + SI. For months divide by 12; for days divide by 365 (or 360 where the contract says so).
Worked example
₹1,00,000 lent at 12% per annum for 3 years: SI = 1,00,000 × 12 × 3 ÷ 100 = ₹36,000, total repayable ₹1,36,000. The same loan for 100 days: SI = 1,00,000 × 12 × 100 ÷ (100 × 365) = ₹3,288. Interest per month is ₹1,000 and per day about ₹32.88.
Calculating interest between two dates
Switch to the From–To Dates mode, pick the dates and the calculator counts the exact days and applies the day-count basis you choose. This is the standard way to compute interest on an overdue invoice, a delayed refund or a friendly loan repaid on an odd date.
Simple vs compound interest
- Simple: interest = P × R × T; grows linearly.
- Compound: interest earns interest; grows exponentially. Over 3 years at 12%, compound yearly gives ₹40,493 vs ₹36,000 simple.
- Most bank FDs, PPF, NSC and loans use compound interest; many informal and legal interest calculations use simple interest.
Tax note
Interest received is taxable under Income from Other Sources at your slab rate. Interest paid on money borrowed for business is a deductible expense; interest on personal borrowing generally is not.
Frequently Asked Questions
How is simple interest different from compound interest?
Simple interest is charged only on the original principal; compound interest is also charged on accumulated interest, so it grows faster.
Which day-count basis should I use?
Use 365 days unless the agreement specifies 360 (common in some trade and banking contracts). Banks in India generally use 365.
How do I calculate interest for a few days?
SI = P × R × days ÷ (100 × 365). Or use the dates mode and let the tool count the days.
Is 1% per month the same as 12% per annum?
For simple interest, yes. For compound interest, 1% per month compounds to 12.68% per annum.
Disclaimer: This tool is for general information and estimation only. Tax rates and rules change — verify with official sources or a professional before acting. Read full disclaimer.