A worked example: ₹25,000 rent, 5% escalation, 5 years
A ₹25,000 monthly rent escalating at a fixed 5% a year becomes ₹31,907.04 after 5 years — a total increase of ₹6,907.04.
The formula: current rent × (1 + rate)^years
Future rent = current rent × (1 + escalation rate)^number of years: ₹25,000 × 1.05^5 = ₹31,907.04. This compounds exactly like interest — each year's increase is applied to the already-escalated rent from the year before, not to the original ₹25,000 every time.
Doubling the horizon nearly doubles the increase — but not the rent
Extending the same 5% escalation to 10 years gives a future rent of ₹40,722.37, a total increase of ₹15,722.37 — more than double the 5-year increase of ₹6,907.04, because the later years compound on top of an already-higher rent.
Why this compounds rather than adds
A common shortcut is to assume a "5% a year" increase means adding 5% of the original rent each year (₹1,250 flat), which after 10 years would suggest ₹37,500 total rent — but the real compounding formula gives ₹40,722.37, over ₹3,000 higher, because each increase is a percentage of an already-larger number.