Section 129: deduction for interest on an education loan

What Section 129 allows

An individual can deduct interest paid during the tax year on a loan taken from a financial institution or an approved charitable institution, provided the loan was taken for pursuing higher education of the individual or a relative, and the interest is paid out of income chargeable to tax.

There is no cap on the amount of interest that can be deducted - the entire interest paid qualifies, unlike most other deductions in this chapter which are capped at a fixed rupee amount.

How long the deduction runs

The deduction is available starting from the "initial tax year" - the year the assessee starts paying interest on the loan - and continues for that year plus the seven tax years immediately following it (eight years total), or until the interest is fully repaid, whichever happens first.

Key definitions

• "Higher education" means any course of study pursued after passing the Senior Secondary Examination (or its equivalent), from an institution recognised by the Central or State Government or a local authority.
• "Relative" means the individual's spouse and children, or a student for whom the individual is the legal guardian - so a loan taken for a spouse's or child's education also qualifies.
• "Financial institution" means a banking company regulated under the Banking Regulation Act, 1949, or any other institution the Central Government notifies for this purpose.
• "Approved charitable institution" refers to certain registered non-profit lenders previously approved under the corresponding provisions of the Income-tax Act, 1961.

Frequently asked questions