With tuition fees, living expenses, and other associated costs related to pursuing higher education rising steadily, education loans have become a practical funding solution for most families.As an added benefit, the Indian government provides a tax deduction on the interest paid on eligible education loans under Section 129 of the Income-tax Act, 2025 (erstwhile Section 80E of the Income-tax Act, 1961), making higher education funding more tax-efficient.
What is Section 129?
Section 129 is a provision under Chapter VIII – Deduction in Computing Total Income of the Income Tax Act, 2025. It is the successor to Section 80E of the Income Tax Act, 1961.
It allows individual taxpayers to claim a tax deduction on the interest paid on an education loan, making it easier to manage loan repayments.
Eligibility Criteria
To claim education loan tax benefits under Section 129, the taxpayer must meet the following eligibility conditions:
- Only individual taxpayers can claim the education loan tax deduction. Hindu Undivided Families (HUFs), companies and other categories of assesses cannot avail deductions under this section.
- The education loan must be taken to pursue higher education for any of the following:
- Self
- Spouse
- Children
- A student for whom the individual is a legal guardian
This makes the provision particularly useful for parents or guardians who take loans to fund a student’s education.
Loan Source Requirements
Not all loans qualify for the education loan tax deduction under Section 129. To be eligible:
- The loan must be obtained from an approved charitable trust or financial institution which the Central Government may, by notification, specify.
- Loans taken from friends, family members, or unregistered institutions are not eligible for deductions under this section.
This ensures that only formal and traceable education loans qualify for tax exemption under this section.
What is Deductible Under Section 129?
One of the most important aspects of Section 129 is that only the interest portion of the loan is deductible. The principal amount is not eligible for education loan tax exemption. However, there is no upper limit on the interest amount that can be claimed as a deduction under Section 129. Thus, the taxpayer can claim the entire interest paid during the financial year.
Time Period for Deduction
The benefit under Section 129 is not unlimited in duration. It is structured as follows:
- The deduction can be claimed from the year you start repaying the loan.
- You can continue claiming tax exemption on an education loan for a maximum of eight consecutive financial years, or until the entire interest is paid off, whichever is earlier.
Even if your loan repayment continues beyond eight years, you will not be able to claim the deduction after the 8-year window ends.
How to Claim Tax Benefits Under Section 129
Claiming tax benefits under Section 129 is a straightforward process. Here’s how you can do it:
- Obtain an Interest Certificate: Request an interest certificate from your education loan provider.
- File Income Tax Returns (ITR): While e-filing your ITR, mention the interest amount under the “Deductions under Chapter VIII” section.
- Maintain Documentation: Always keep copies of the interest certificate and loan documents for record and verification.
Key Points to Remember
While claiming education loan income tax benefit, keep the following points in mind:
- Only individual taxpayers are allowed this deduction, not HUFs, companies, or firms.
- The loan must be from an approved source, not informal lenders or personal arrangements.
- This deduction can be claimed along with other tax-saving deductions like Section 80C (for tuition fees or LIC premiums).
These checks ensure that only genuine education loans qualify for tax relief.
Conclusion
Section 129 provides tax relief on the interest paid towards education loans, helping reduce the overall financial impact of higher education. With no upper limit on the deductible interest and a defined claim period, it serves as a useful provision for individuals repaying loans for higher studies. Those planning to go for higher education in India or abroad can explore education loan options from Credila, which offer flexible repayment plans. This can support both the funding needs and the potential tax benefits of student loans under Section 129.
