Section 129, Income-tax Act 2025: Deduction in respect of interest on loan taken for higher education

What changed when Section 80E became Section 129?

The address, not the deal. The old Income-tax Act 1961 carried this deduction as Section 80E; the Income-tax Act 2025 re-enacts it, the same in substance, as Section 129, titled "Deduction in respect of interest on loan taken for higher education". Every rule that mattered under 80E carries over: interest only, no cap, eight years, an individual claimant, and the old regime alone.

The one label to relearn is the year count. Where 80E spoke of the "initial assessment year" and seven following assessment years, Section 129 uses the Act's single "tax year", so the window is the initial tax year plus seven succeeding tax years. It is the same eight years, described with one word instead of two.

Section number and title cross-checked against multiple published copies of the enacted Act.†

Who can claim the deduction, and for whom?

Only an individual, and only for a defined circle of people. A Hindu Undivided Family, a firm or a company cannot claim Section 129 at all, however the loan is structured. That is a real narrowing from the general deduction basket, where HUFs share several items.

An individual can claim interest on a loan taken for the higher education of:

• Themselves.
• Their spouse.
• Their children, including a legally adopted child. There is no age bar and no limit on the number of children.
• A student for whom the individual is the legal guardian.

A loan for your parents' or siblings' education earns nothing here, and neither does a loan from an employer or a relative. The claimant must also be the one paying the interest out of income that is itself taxable: if the borrower is a student with no income, no one claims the deduction that year, which is why a working parent is usually made a co-borrower so the interest can be set against their salary.

Which loans and lenders qualify?

It has to be an education loan from an approved lender, taken to fund higher education. Two boxes must both be ticked: the right lender and the right purpose.

† Whether a given NBFC's loan qualifies turns on whether that NBFC is a notified financial institution for this deduction. Loans from banks clearly qualify; for an NBFC, ask the lender to confirm eligibility and to issue a Section 129 (old 80E) interest certificate. This is a lender-by-lender check, not a settled yes or no.

What counts as higher education?

Almost anything after class 12. 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 a government or an authorised body. That sweep is deliberate.

In practice this covers:

• Regular degrees: engineering, medicine, law, arts, commerce, science, and postgraduate courses like an MBA or an overseas master's.
• Professional and vocational courses taken after class 12, not only conventional university degrees.
• Study in India or abroad: a loan for a master's in the United States qualifies exactly as one for a degree in Delhi does.

Anything up to and including class 12 is outside the section: school fees, and coaching or entrance-exam classes taken before senior secondary, do not qualify. Once the course is post-class-12, the field of study and the country do not restrict the claim.

How the eight-year window works

The clock starts when you start paying interest, and runs for eight tax years. The Act calls the first year the "initial tax year", the tax year in which you start paying interest on the loan. You then get that year and the seven tax years immediately after it, eight in all, or until the interest is fully paid, whichever comes first.

Two things follow. First, the moratorium many education loans give (the course period plus a grace spell) delays when interest becomes payable, so the eight-year window often opens a few years after the loan is sanctioned, not on the day you sign. Second, the window is a hard eight years: on a longer loan, the interest you pay in year nine and beyond earns no deduction, even though it is genuine education-loan interest. The figure above marks the cut-off.

Refinancing to a cheaper lender does not restart the clock. The window is tied to the year you first began paying interest on the education loan, so moving the balance to another eligible bank continues the deduction but, on the plain reading of the initial-year rule, does not hand you a fresh eight years.

How much tax does the deduction actually save?

Your slab rate on every rupee of interest, with no ceiling to bump into. Because Section 129 caps nothing, the deduction removes the whole year's interest from your taxable income, and what that is worth depends only on the old-regime slab it comes off.

At the 30% slab, ₹1,00,000 of interest cuts your tax by ₹31,200 with cess; at the 20% slab, by ₹20,800; at the 5% slab, by ₹5,200. On the big loans that fund a foreign master's, where a year's interest can run past ₹2,00,000, the uncapped design is the whole point: an 80C-style ₹1.5 lakh ceiling would leave part of that interest unsheltered, and this section does not.

The catch is in that last phrase: this is old-regime arithmetic. The deduction only saves tax if you are actually paying old-regime tax on the income it comes off. On the new regime it saves nothing, for the reason set out below.

How do you claim the deduction?

Four steps, all built on one document:

• Get an interest certificate from your lender at year-end. It splits each EMI into principal and interest and totals the interest you paid during the tax year. Only that interest figure is deductible.
• Confirm you are on the old regime. Section 129 is unavailable on the default new regime, so opt into the old regime for the year, through the return, or through Form 10-IEA where business income makes that route necessary.
• Salaried: declare it to your employer on Form 12BB with the certificate, so the deduction lands in your TDS through the year instead of waiting for a refund.
• Enter it in the deductions schedule of your ITR (ITR-1 or ITR-2 for most salaried claimants) under the education-loan-interest head. Keep the certificate and the sanction letter; nothing is attached to the return, but the department can ask.

The income tax calculator linked below shows what the interest is worth against your slab before you file.

Traps and edge cases

The corners where claims go wrong:

• Principal is never deductible here. Only the interest component qualifies; the principal part of your EMI gets nothing under Section 129, and (unlike a home loan's principal) nothing under the ₹1.5 lakh basket either.
• A personal or top-up loan spent on fees does not qualify. The loan itself has to be an education loan for higher education; how you spend a general-purpose loan does not convert it into one.
• The payer is the claimant. Interest must be paid out of your income chargeable to tax, so if the loan sits in a non-earning student's name and no earning parent is a co-borrower who pays, the deduction can be lost. Add the earning parent as co-borrower at sanction.
• One rupee, one deduction. The same interest cannot be claimed twice; a co-borrowing parent and the child cannot both deduct the same payment.
• The eight-year cut-off is real. Interest paid after the window closes is simply not deductible, so a 12-year loan wastes the deduction on its last years unless you prepay inside the window.
• Loan interest and tuition fees are different rupees. The old 80C (now Section 123) covers tuition fees for a child's schooling, capped inside the ₹1.5 lakh basket; Section 129 covers interest on a loan for higher education, uncapped. Use both if they apply, never on the same rupee.

Is Section 129 available under the new regime?

No. Like the rest of the Chapter VIII deduction basket, the education-loan interest deduction is an old-regime benefit only. If you stay on the default new regime, Section 129 deducts nothing, whatever interest you paid.

That makes the deduction a reason to run the regime comparison, not a reason to assume the old regime wins. Below about ₹12 lakh of income the new regime's rebate already zeroes your tax, so there is nothing for the deduction to save; the old regime, with Section 129 and whatever else you can stack, only pulls ahead once your income and your total deductions are both large enough. The income tax calculator below runs both regimes with the interest deduction in place.

Should you claim on the old regime, and when should you prepay?

Claim it whenever you are on the old regime and paying education-loan interest; there is no downside and no cap. The live decisions are two: whether the deduction helps tip you onto the old regime at all, and how to keep interest inside the eight-year window.

On the regime question, put a number on it. Take the 30% taxpayer again: ₹2,00,000 of education-loan interest is worth ₹62,400 of tax off the old-regime bill, cess included. Stack that with a full ₹1,50,000 Section 123 basket and ₹25,000 of health premiums and the old regime can beat the new one; on its own, on a middling income, ₹2,00,000 of interest often will not, because the new regime starts from lower slabs. Never assume: run both.

On timing, watch the cut-off. The deduction ends eight tax years after your interest starts, so on a longer loan the last years of interest fall outside it. If a lump sum comes your way, prepaying to clear the loan inside the window does two good things at once: it saves the interest itself, and it stops that interest from spilling into years where it would earn no deduction. A borrower at the 30% slab who would otherwise pay ₹1,10,000 of interest in years nine to twelve loses ₹34,320 of tax benefit on it; prepaying captures that.

One more lever: who borrows. Because only the person paying interest out of taxable income can claim, put the loan (or a co-borrower slot) in the name of the family member with the highest old-regime slab and the income to service it. The same ₹1,00,000 of interest saves ₹31,200 in a 30% earner's hands and ₹5,200 in a 5% earner's; deciding this at the sanction stage, not after, is where the planning lives.

Worked examples

Section 129 FAQs

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