The total amount due to Kabir = Rs. 1,00,000
This will be paid in 4 equal yearly installments, so:
Principal amount per installment = 41,00,000 = Rs. 25,000
At the end of Year 1:
Opening balance = Rs. 1,00,000
Interest @ 12% = 1,00,000×10012 = Rs. 12,000
Principal installment = Rs. 25,000
Total payment = Rs. 25,000 + Rs. 12,000 = Rs. 37,000
Unpaid balance after Year 1 = Rs. 1,00,000 - Rs. 25,000 = Rs. 75,000
At the end of Year 2:
Opening balance = Rs. 75,000
Interest @ 12% on unpaid balance = 75,000×10012 = Rs. 9,000
Principal installment = Rs. 25,000
Total payment at end of Year 2 = Rs. 25,000 + Rs. 9,000 = Rs. 34,000
The interest keeps reducing each year because it is calculated only on the unpaid balance (which reduces as installments are paid).