Section 129 of the Income-tax Act, 2025 allows an individual a deduction for interest paid on a loan taken from a financial institution or approved charitable institution for higher education of self or a relative. It runs for the initial tax year and seven succeeding years, or until the interest is fully paid.
What section 129 does
Section 129 carries forward section 80E of the Income-tax Act, 1961. It is one of the few deductions with no monetary ceiling — the whole of the interest paid is deductible, though only the interest and never the principal.
The relief is available to an individual only, on a loan taken from a financial institution or an approved charitable institution, for the higher education of the individual or a relative.
The time limit is the constraint. Sub-section (2) allows it for the initial tax year and seven immediately succeeding tax years, or until the interest is fully paid, whichever is earlier — a maximum of eight years, starting from the year you begin paying interest.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 80E(1) | Deduction for interest on an education loan | 129(1) |
| 80E(2) | Initial year plus seven succeeding years | 129(2) |
| 80E(3)(a) | Definition of approved charitable institution | 129(3)(a) |
| 80E(3)(b) | Definition of financial institution | 129(3)(b) |
| 80E(3)(c) | Definition of higher education | 129(3)(c) |
| 80E(3)(e) | Definition of relative | 129(3)(e) |
Section 129 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1) — the conditions
An individual is allowed a deduction of the amount paid as interest during the tax year on a loan taken from a financial institution or approved charitable institution, if (a) the loan is for pursuing higher education of the individual or a relative, and (b) the payment is made out of income chargeable to tax. Only interest qualifies — principal repayment does not.
Sub-section (2) — the eight-year window
The deduction is allowed for the initial tax year and the seven tax years immediately succeeding it, or until the interest is fully paid, whichever is earlier. The clock starts from the initial year, defined in sub-section (3)(d) as the year in which the assessee starts paying the interest — not the year the loan was taken.
Sub-section (3)(a) and (b) — who may lend
An approved charitable institution means a registered non-profit organisation previously approved under section 10(23C) of the Income-tax Act, 1961, or an institution referred to in section 80G(2)(a) of that Act. A financial institution means a banking company to which the Banking Regulation Act, 1949 applies, including a bank referred to in section 51 of that Act, or any other financial institution notified by the Central Government. A loan from an employer, a relative or a private lender does not qualify.
Sub-section (3)(c) — what counts as higher education
Any course of study pursued after passing the Senior Secondary Examination or its equivalent from a school, board or University recognised by the Central or State Government, a local authority, or an authority authorised by them. The definition is deliberately wide — it is not confined to particular streams or to studies in India.
Sub-section (3)(e) — whose education qualifies
Relative means the spouse and children of the individual, or the student for whom the individual is the legal guardian. A loan taken for a sibling's or a parent's education does not qualify unless the guardianship condition is met.
Worked example
A parent takes a ₹28,00,000 education loan from a scheduled bank in June 2025 for a child's postgraduate course. A moratorium applies and the first interest payment is made in August 2026, which falls in tax year 2026-27.
| Tax year | Interest paid | Deduction under section 129 |
|---|---|---|
| 2026-27 — the initial tax year | ₹1,90,000 | ₹1,90,000, in full |
| 2027-28 to 2033-34 — the seven succeeding years | As paid each year | Fully deductible each year |
| 2034-35 — the ninth year, interest still outstanding | ₹40,000 | Nil — the eight-year window has closed |
Two points are worth drawing out. First, the initial year is 2026-27 because that is when interest payment began — not 2025-26 when the loan was taken, which preserves a full eight years of relief. Second, there is no monetary cap: the entire ₹1,90,000 is deductible, unlike section 123 with its ₹1,50,000 ceiling. Principal repayments, however, get nothing under this section.
Compliance checklist and due dates
- Borrow from a bank or notified financial institution or an approved charitable institution — loans from relatives or employers do not qualify.
- Identify the initial tax year as the year interest payment starts, and diarise the eight-year window from there.
- Obtain an annual interest certificate splitting interest from principal; only interest qualifies.
- Confirm the student is the individual, spouse, a child, or a student for whom the individual is legal guardian.
- Ensure the course is pursued after Senior Secondary level — coaching or school fees do not qualify.
- Check section 202 before claiming, since the new regime restricts most Chapter VIII deductions.
- File the return by the section 263(1) due date and make the claim in it, as section 122 requires.
Common mistakes
- Counting the eight years from the year the loan was sanctioned rather than from the first interest payment.
- Claiming principal repayment under this section.
- Taking the loan from a relative, employer or non-notified lender.
- Claiming for a sibling's or parent's education without being their legal guardian.
- Assuming a ceiling applies. There is none — but there is a time limit.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.