What type of interest is calculated only on the principal amount?

The concept of interest calculated only on the principal amount refers to simple interest. Simple interest is used primarily in lending scenarios where interest accrues on the original sum of money, or principal, over time. This means that if you borrow or invest a specific amount, the interest earned or paid is determined solely on that initial amount, without taking into account any interest that may have been accrued in previous periods.

In contrast, compound interest takes into account not only the principal but also any interest that has already been added to the principal. This results in interest being earned on both the initial principal and any accumulated interest, leading to exponential growth of the investment or debt over time.

Tax loss carryforward and capital gains tax do not pertain to interest calculations. Tax loss carryforward is a tax provision that allows taxpayers to use some losses in future tax periods, while capital gains tax pertains to the tax applied to the profit resulting from the sale of assets or investments, not directly related to interest. Thus, the correct answer reflects the fundamental principle that simple interest is exclusively based on the initial principal amount.