A worked example: ₹1,00,000 in 5 years, discounted at 8%
₹1,00,000 to be received in 5 years, discounted at 8% annually, is worth only ₹68,058.32 today — a discount of ₹31,941.68, reflecting that money received later is worth less than the same amount in hand today.
The formula: PV = FV ÷ (1 + rate)^years
Dividing by the growth factor rather than multiplying by it is what makes this the reverse of future value — instead of projecting an amount forward, it discounts a known future amount back to its present-day equivalent.
A case where the discount exactly matches a real future value: ₹4,02,627.50 at 10% for 5 years
Discounting ₹4,02,627.50 back 5 years at 10% gives exactly ₹2,50,000 — no rounding gap at all, because this future amount was itself generated by growing ₹2,50,000 at that same 10% for 5 years in the first place.
Why the discount rate choice matters enormously
A common approach is to use your expected rate of return from an alternative investment of similar risk — a benchmark like a fixed deposit or government bond yield. Choosing a different discount rate changes the present value substantially, since it's raised to the power of the number of years, compounding any difference in the rate itself.
What this doesn't handle
This discounts a single future lumpsum only, not a stream of multiple cash flows arriving at different future dates — that broader case is what the Net Present Value Calculator is built for.