Deduction in respect of interest on loan taken for higher education
[Section-129 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 129(1) of Income Tax Act 2025
129(1) An assessee, being an individual, shall be allowed a deduction of amount paid as interest during a tax year, subject to the provisions of this section, on a loan taken by him from any financial institution or any approved charitable institution, if the––
- (a) loan taken is for the purpose of pursuing higher education of himself or his relative; and
- (b) payment is made out of his income chargeable to tax.
Section 129(2) of Income Tax Act 2025
129(2) The deduction referred to in sub-section (1) shall be allowed in computing the total income in respect of the initial tax year and seven tax years immediately succeeding the initial tax year, or until the interest on the loan is fully paid by the assessee, whichever is earlier.
Section 129(3) of Income Tax Act 2025
129(3) In this section,—
- (a) “approved charitable institution” means a registered non-profit organisation where it was approved earlier under the provisions of section 10(23C) of the Income-tax Act, 1961, or an institution referred to in section 80G(2)(a) of the said Act;
- (b) “financial institution” means a banking company to which the Banking Regulation Act, 1949 applies (including any bank or banking institution referred to in section 51 of that Act) or any other financial institution which the Central Government may, by notification, specify;
- (c) “higher education” means any course of study pursued after passing the Senior Secondary Examination or its equivalent from a school, board, or University recognised by the Central Government or State Government, local authority, or by any authority authorised by the Central Government or State Government or local authority to do so;
- (d) “initial tax year” means the tax year in which the assessee starts paying the interest on the loan; and
- (e) “relative”, in relation to an individual, means the spouse and children of that individual, or the student for whom the individual is the legal guardian.
FAQs on Section 129 of Income Tax Act 2025
Who is eligible to claim deduction under section 129 of the Income Tax Act, 2025?
An individual assessee who has taken a loan for higher education of himself or his relative is eligible.
What type of loan qualifies for deduction under section 129?
A loan taken from a financial institution or an approved charitable institution qualifies.
What is the purpose for which the loan should be taken to claim deduction under this section?
The loan must be taken for pursuing higher education.
Whose higher education expenses can be covered for deduction under section 129?
The deduction can be claimed for higher education expenses of the assessee himself or his relative.
Who is considered a ‘relative’ under this section?
‘Relative’ means the spouse and children of the individual, or the student for whom the individual is the legal guardian.
What is the condition regarding the source of interest payment to claim deduction?
The payment of interest must be made out of the income chargeable to tax.
What is the maximum duration for which this deduction can be claimed?
The deduction can be claimed for the initial tax year and seven tax years immediately succeeding it, or until the interest is fully paid, whichever is earlier.
What is meant by ‘initial tax year’ under section 129?
It is the tax year in which the assessee starts paying the interest on the loan.
Is there any monetary limit on the amount of interest deduction under section 129?
No specific monetary limit is prescribed in the section; the actual amount of interest paid is allowed.
Can this deduction be claimed for both principal and interest components of the loan repayment?
No, the deduction is available only for the interest component.
Is this deduction available for foreign education loans as well?
Yes, provided the loan is for higher education and taken from a specified financial institution or approved charitable institution.
What is considered as ‘higher education’ under this section?
Any course of study pursued after passing the Senior Secondary Examination or its equivalent from a recognised school, board, or university.
Can the deduction be claimed for a loan taken from a friend or relative?
No, the loan must be from a financial institution or an approved charitable institution.
Is there a condition that the educational institution should be located in India?
No such condition is mentioned; the focus is on the nature of the course and the source of the loan.
What is a ‘financial institution’ as per section 129?
It includes any banking company under the Banking Regulation Act, 1949, or other financial institutions notified by the Central Government.
What is an ‘approved charitable institution’ under this section?
It refers to institutions previously approved under section 10(23C) or listed in section 80G(2)(a) of the Income-tax Act, 1961.
Can both parents claim deduction for the same loan interest?
No, only the person who is actually paying the interest from their taxable income can claim the deduction.
Can the deduction be claimed if interest payment is made out of exempt income?
No, the interest must be paid out of income chargeable to tax.
Is any documentation required to claim the deduction?
Yes, proof of interest payment and loan documents from the specified lender may be required during assessment.
What happens if the interest payment stops before the end of the 8-year period?
The deduction will be allowed only up to the year the interest is paid.
Is prepayment of the education loan allowed under this provision?
Yes, but deduction is available only for the actual years in which interest is paid, subject to the 8-year maximum.
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