Hello Rashmi,
If business doesn't want to keep maintaining condition record, in this case add a new conditon type with custom routine which will make it active only in the second year of contract.. and based on the age of the contract and based on age it will go on adding the percentage.. using this method you will also have flexibility of varying the percentage..
The logic should check based on the contract start date at item level...
Regards
Naveen Kaluti