Education-Loan Interest: Section 80E

An education loan is often taken in a parent’s name and repaid by the student. Or it comes from a lender that is not a bank. Or repayment starts years after the course begins. Each of these decides whether the interest is deductible, and for how long. Section 80E has no rupee cap, but it is narrow in other ways. It covers interest, not principal. It is allowed only to the person who took the loan. Only certain lenders qualify. And it lasts eight years at most. This guide sets out those conditions under both Acts.

Which Act governs which year

Financial year 2025-26 (assessment year 2026-27) and earlier. The Income-tax Act, 1961 applies, through section 80E.

Tax year 2026-27 onwards. The Income-tax Act, 2025 applies, through section 129.

Earlier years stay under the 1961 Act by section 536(2) of the 2025 Act.

Item	1961 Act	2025 Act
The deduction	s.80E(1)	s.129(1)
Eight-year period	s.80E(2)	s.129(2)
Approved charitable institution	s.80E(3)(a)	s.129(3)(a)
Financial institution	s.80E(3)(b)	s.129(3)(b)
Higher education	s.80E(3)(c)	s.129(3)(c)
Initial year	s.80E(3)(d)	s.129(3)(d)
Relative	s.80E(3)(e)	s.129(3)(e)

What is deductible: interest paid, nothing else

Section 80E(1) allows an individual a deduction for “any amount paid by him in the previous year, out of his income chargeable to tax, by way of interest on loan taken by him”. Section 129(1) is the same for the tax year. Four limits follow from those words.

• Interest only. Repayment of principal is not deductible under section 80E. Unlike a housing loan, there is no principal deduction under section 80C either.
• Paid, not accrued. The test is interest “paid” in the year. Interest that accrues during a moratorium and is added to the loan is deducted only when it is actually paid.
• No rupee cap. Neither provision sets an upper limit on the amount of interest.
• Out of taxable income. The payment must come out of the assessee’s “income chargeable to tax”.

Who may claim: the borrower, for a defined circle of students

The loan must be “taken by him”, and the deduction goes only to an individual. A Hindu undivided family cannot claim it.

The education may be the borrower’s own or that of a “relative”. Section 80E(3)(e) defines “relative” as “the spouse and children of that individual or the student for whom the individual is the legal guardian”, and section 129(3)(e) is the same. A loan taken by a brother or sister for a sibling’s studies does not qualify, because a sibling is not a “relative” here.

Where a parent takes the loan for a child, the parent is the borrower and claims the interest the parent pays. Where the student takes the loan, the student claims it once the student has taxable income and pays the interest. The Act does not deal expressly with a loan taken jointly. The words “taken by him” and “paid by him” are the tests.

The course: anything after senior secondary

“Higher education” means “any course of study pursued after passing the Senior Secondary Examination or its equivalent”. The school, board or university must be recognised by the Central Government, a State Government or a local authority, or by an authority they authorise (section 80E(3)(c); section 129(3)(c)). The recognition requirement attaches to the senior secondary qualification. The definition does not confine the later course to India, or to full-time study, or to any particular field.

The lender: a bank, a notified institution, or an approved charity

Interest qualifies only on a loan from a “financial institution” or an “approved charitable institution”.

Financial institution (section 80E(3)(b); section 129(3)(b)) means:

• “a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act)”; or
• “any other financial institution which the Central Government may, by notification … specify”.

A loan from any other lender, such as a non-banking company, qualifies only if that lender is notified for the purpose. A loan from a relative or a friend, or from an employer that is not such an institution, does not qualify.

Approved charitable institution differs slightly between the Acts:

• Section 80E(3)(a) of the 1961 Act: an institution specified in, or established for charitable purposes and approved under, section 10(23C), or “an institution referred to in clause (a) of sub-section (2) of section 80G”.
• Section 129(3)(a) of the 2025 Act: “a registered non-profit organisation where it was approved earlier under the provisions of section 10(23C) of the Income-tax Act, 1961 … or an institution referred to in section 80G(2)(a) of the said Act”.

The 2025 Act thus defines the qualifying charity partly by reference to its status under the repealed Act.

How long: eight years at most

Section 80E(2) allows the deduction “in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest … is paid by the assessee in full, whichever is earlier”. The “initial assessment year” is the assessment year relevant to the previous year “in which the assessee starts paying the interest on the loan”. Section 129(2) and (3)(d) say the same in terms of the “initial tax year” and seven succeeding tax years.

So:

• The clock starts when interest payment starts, not when the loan is sanctioned or the course begins. A moratorium therefore delays the start.
• The eight years run whether or not interest is paid in each of them. A year with no payment uses up a year of the eight.
• Interest paid after the eighth year is not deductible, even if the loan is still outstanding.

Across the change of Act. A borrower who started paying interest in, say, FY 2022-23 has an initial assessment year of AY 2023-24 and a last year of AY 2030-31 under the 1961 Act. From tax year 2026-27 the claim falls under section 129. That section defines the “initial tax year” as “the tax year in which the assessee starts paying the interest on the loan”. Section 3(1) of the 2025 Act defines a “tax year” as the twelve months of the financial year beginning 1 April. Read with that definition, the count continues from the year in which payment actually began, and does not restart in 2026-27. No provision of the 2025 Act says so in terms.

Not available under the new regime

Section 115BAC(2)(i) of the 1961 Act excludes all Chapter VI-A deductions other than sections 80CCD(2), 80CCH(2) and 80JJAA. Section 202(2)(a)(xii) of the 2025 Act excludes all of Chapter VIII other than sections 124(1) and (2), 125(2) and 146. Sections 80E and 129 are therefore lost under the new regime. An individual without business income leaves it only in the return filed by the due date; see Old or New Regime: The Choice for Employees.

What to have ready

• The sanction letter, showing the borrower, the lender and the purpose. It comes from the lender.
• The lender’s interest certificate for the year, splitting interest from principal, or the loan account statement. The deduction is the interest actually paid in the year, not the instalment.
• Proof of the lender’s status: a bank; an institution notified by the Central Government; or an approved charitable institution, with its approval.
• Evidence of the student’s relationship to the borrower: self, spouse, child, or a student of whom the borrower is legal guardian.
• Admission or enrolment papers showing a course after senior secondary.
• A note of the year interest payment started, to fix the eight-year window.

Proof to the employer, and the return

An employer may allow the deduction in monthly TDS on evidence: Form No. 12BB under rule 26C of the Income-tax Rules, 1962 up to FY 2025-26, and Form No. 124 under rule 205 of the Income-tax Rules, 2026 from tax year 2026-27. Otherwise the deduction is claimed in the deductions schedule of the return.

After filing

Interest missed in the original return can be claimed in a revised return; see Belated and Revised Returns. An updated return cannot be used to reduce tax or increase a refund (proviso to section 139(8A); section 263(6)(c) of the 2025 Act).

In order

1. Fix the Act: section 80E for FY 2025-26 and earlier; section 129 from tax year 2026-27.
2. Confirm the old regime, chosen in a return filed by the due date.
3. Check that the claimant is the individual who took the loan and paid the interest.
4. Check that the student is the claimant, the spouse, a child, or a student of whom the claimant is legal guardian, studying after senior secondary.
5. Check that the lender is a bank, a notified financial institution or an approved charitable institution.
6. Identify the year interest payment started and count eight years from it.
7. Claim the interest actually paid in the year, without any principal.

The next guide, Donations: Section 80G and Form 10BE, deals with the deduction for gifts to charities and approved funds.