Education Loan Interest Deduction under the Income Tax Act 2025: Section 129 Explained

Under section 129 of the Income Tax Act 2025, an individual can claim a deduction for the interest paid on a loan taken for higher education. The loan must come from a bank or other financial institution (or an approved charitable institution) and must be for the individual or a relative. The deduction runs for the initial tax year plus the seven tax years that follow, which is 8 tax years, or until the interest is fully paid, whichever is earlier.

The section sets no rupee cap on the deduction. It covers interest only, not the principal. Whether you can claim it depends on your tax regime. This guide covers who qualifies, what counts as higher education, how the 8-year window works, and the common ways claims go wrong. Every condition below comes from the Act as amended by the Finance Act, 2026. Last reviewed against that text on 10 November 2026.

Who can claim the education loan interest deduction under section 129?

Section 129(1) allows the deduction to an assessee who is an individual. A company, firm, or HUF cannot claim it. The individual must have taken the loan in his or her own name.

Three conditions must hold together under section 129(1):

1. The loan is taken from a financial institution or an approved charitable institution.
2. The loan is taken to pursue higher education of the individual or a relative.
3. The interest is paid out of income chargeable to tax.

The diagram covers the loan conditions only. Two further limits apply to every Chapter VIII deduction: your regime must allow it, and all Chapter VIII deductions together cannot exceed your gross total income (section 122(2)). Both are covered below.

Which lenders count under section 129?

Section 129(3) defines two kinds of lender.

Term	Meaning under section 129(3)
Financial institution (clause b)	A banking company to which the Banking Regulation Act, 1949 applies (including a bank or banking institution referred to in section 51 of that Act), or any other financial institution the Central Government specifies by notification
Approved charitable institution (clause a)	A registered non-profit organisation that was approved earlier under section 10(23C) of the Income-tax Act, 1961, or an institution referred to in section 80G(2)(a) of that Act

A loan from a friend, relative, employer or an unlisted private lender is outside both definitions. Interest on such a loan does not qualify, however genuine the loan is.

What counts as "higher education" and who is a "relative"?

Section 129(3)(c) defines higher education as 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, a State Government, a local authority, or an authority authorised by them. The definition is not limited to degree courses in India. It looks at the level of study (after Senior Secondary), and the section does not restrict the field of study.

Section 129(3)(e) defines relative of an individual as:

• the individual's spouse and children, or
• the student for whom the individual is the legal guardian.

Parents and siblings are not in this definition. A person who borrows to fund a younger brother's course is not borrowing for a "relative" as section 129 uses the word, unless he is the brother's legal guardian.

For how many years can you claim the deduction?

Section 129(2) allows the deduction in the initial tax year and the seven tax years immediately succeeding it, or until the interest is fully paid, whichever is earlier. Section 129(3)(d) defines the initial tax year as the tax year in which you start paying the interest. It is not the year the loan was sanctioned or the course began. If the lender gives a moratorium and you pay no interest during the study period, the clock starts in the year the first interest payment is made.

Is there a limit on the amount of the deduction?

Section 129 states no rupee ceiling. The deduction equals the amount of interest paid in the tax year on the qualifying loan. Two things still limit it:

• Interest only. The section allows a deduction of "amount paid as interest". The principal part of an EMI gets no deduction.
• Gross total income. Under section 122(2), the aggregate of all Chapter VIII deductions cannot exceed your gross total income. Section 129 itself has no provision to carry an unused amount forward to another year.

Is interest that is only accrued, or added to the loan, deductible?

Section 129(1) allows "amount paid as interest during a tax year", and section 129(1)(b) requires the payment to come out of income chargeable to tax. The test is payment in that tax year. Interest that has accrued during a moratorium but has not been paid, or that the lender has capitalised into the loan balance, is not an amount paid in that year on the wording of the section. It becomes deductible only in the year it is actually paid, and only inside the 8-year window. Ask the lender for a certificate that splits each year's payment into principal and interest.

The loan must also be one "taken by him", so a student who is not the borrower cannot claim interest paid by the parent, and the parent claims only if the loan is in the parent's name and paid from the parent's taxable income.

Can you claim it under the default tax regime?

Usually not. Section 202(2)(a)(xii) says that under the default regime in section 202(1), total income is computed without any Chapter VIII deduction other than sections 124(1), 124(2), 125(2) and 146. Section 129 is not on that list. To claim it, the individual must opt out of the default regime under section 202(4). Our overview of Chapter VIII deductions explains how the option works and how deductions are capped.

So the choice of regime matters. A student loan with large interest payments may or may not tip the balance for you. That comparison depends on your slabs and your other deductions, so run both regimes before deciding.

Worked example 1: how much is the deduction in a normal year?

Assumptions: Ravi is a resident individual who has opted out of the default regime under section 202(4). In tax year 2026-27 he pays interest on a bank loan taken for his daughter's postgraduate course abroad. He has no other Chapter VIII deductions. This is his first year of interest payments, so 2026-27 is his initial tax year.

Step	Figure
Gross total income	Rs 9,00,000
EMIs paid in 2026-27 (9 months x Rs 20,000)	Rs 1,80,000
Of which principal repaid, per bank certificate	Rs 96,000
Of which interest paid (Rs 1,80,000 - Rs 96,000)	Rs 84,000
Deduction under section 129 (interest only)	Rs 84,000
Total income (Rs 9,00,000 - Rs 84,000)	Rs 8,16,000

The daughter is Ravi's child, so she is a "relative" under section 129(3)(e). Only the interest of Rs 84,000 is deducted. The bank's year-end interest certificate is the document to keep.

Worked example 2: what happens after the 8-year window?

Assumptions: Meena, who has opted out of the default regime, took a bank loan for her own MBA. She starts paying interest in tax year 2026-27 and pays Rs 90,000 of interest every year for 10 years (a simplification, since real interest falls as the principal reduces).

Tax year	Interest paid	Within 8-year window?	Deduction under s.129
2026-27 (initial tax year)	Rs 90,000	Yes	Rs 90,000
2027-28 to 2033-34 (7 years)	Rs 90,000 each	Yes	Rs 6,30,000 in total (7 x Rs 90,000)
2034-35 and 2035-36	Rs 90,000 each	No	Nil

Total deduction over the window: Rs 90,000 + Rs 6,30,000 = Rs 7,20,000, which is 8 x Rs 90,000. The Rs 1,80,000 of interest paid in the last two years earns no deduction under section 129 because section 129(2) stops at the initial year plus seven.

If Meena had cleared the whole loan in, say, the sixth year, the deduction would have stopped there, because the section ends at the earlier of the two events.

Worked example 3: when interest exceeds your income

Assumptions: Karan, who has opted out of the default regime, is a student's father with gross total income of Rs 1,50,000 in tax year 2026-27. He paid Rs 2,10,000 of interest on his son's education loan and has no other Chapter VIII deduction.

Step	Figure
Interest paid	Rs 2,10,000
Section 122(2) cap: gross total income	Rs 1,50,000
Deduction allowed (lower of the two)	Rs 1,50,000
Total income (Rs 1,50,000 - Rs 1,50,000)	Nil

The unused Rs 60,000 is not carried forward under section 129. Because that year still counts inside the 8-year window, a low-income year can use up one of the 8 years without giving the full benefit.

Real-life scenarios

A loan for a spouse. Sunita takes a bank loan to fund her husband's part-time MBA. Her husband is her spouse, so he is a "relative" and the loan qualifies, provided Sunita is the borrower and pays the interest from her own taxable income. If her husband is the borrower instead, only he can claim.

A loan from an uncle. Arjun's uncle lends him Rs 5,00,000 for a postgraduate course and Arjun pays interest every month. The uncle is not a bank, specified financial institution or approved charitable institution, so no deduction is available under section 129, however well documented the loan is.

A moratorium on the loan. Neha's bank loan has a moratorium until six months after her course ends, so she pays nothing in 2026-27 and 2027-28. She starts paying interest in 2028-29. That is her initial tax year, and the 8-year window runs to 2035-36.

Common mistakes

• Claiming the whole EMI. Only the interest part qualifies. Use the lender's interest certificate, not the EMI total.
• Forgetting the regime. Under the default regime section 129 is not available. A claim in a return filed without opting out under section 202(4) will not hold.
• Borrowing from a non-qualifying source. Family loans and loans from lenders outside section 129(3)(b) do not qualify.
• Counting the window from the sanction date. The 8 years run from the year you start paying interest, not from when the loan was sanctioned or the course began.
• Assuming siblings or parents are "relatives". The definition covers spouse, children and a student for whom you are legal guardian.
• Claiming interest that was not paid out of taxable income. Section 129(1)(b) requires the payment to be made out of income chargeable to tax.

Quick reference

Point	Position under section 129
Who can claim	Individual (s.129(1))
What is deducted	Interest paid in the tax year; no rupee cap in the section
Lender	Financial institution or approved charitable institution (s.129(3)(a), (b))
Purpose	Higher education of self or relative (s.129(1)(a), (3)(c), (3)(e))
Duration	Initial tax year plus 7 tax years, or until interest is fully paid (s.129(2))
Regime	Not allowed under the default regime unless you opt out (s.202(2)(a)(xii), s.202(4))
Overall cap	Chapter VIII deductions together cannot exceed gross total income (s.122(2))

Where this is in the Act

• Section 129(1): who gets the deduction and the three conditions
• Section 129(2): the initial tax year plus seven years limit
• Section 129(3): definitions of approved charitable institution, financial institution, higher education, initial tax year and relative
• Section 122(2): overall cap on Chapter VIII deductions
• Section 202(2)(a)(xii) and 202(4): regime restriction and the option to opt out

For a CA firm, the practical task is to track each client's loan, the interest certificate, the regime choice and the year in which the 8-year window ends. Finexo's practice management software keeps client documents and reminders in one place, so the claim is not missed in the later years. It does not compute the deduction or file the return for you.

This article explains the Income Tax Act 2025 (as amended by the Finance Act, 2026). It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.