Section 129 of the Income Tax Act 2025

Section 129 of the Income Tax Act 2025 enables individual taxpayers to deduct educational loan interest payments from their taxable income.

The section applies to higher education loans, which individuals take for themselves or for designated relatives, including their spouse, children, or a student for whom the individual is the legal guardian.

The loan should be taken from a recognised financial institution or an approved charitable institution. Deduction is available only on the interest component of repayment and not on the principal. Interest should be paid from income that is chargeable to tax.

This provision continues the benefit earlier available under Section 80E of the Income Tax Act, 1961, with no major changes in eligibility or benefits. It adopts simplified language, improved structure, and updated uniform terminology such as “tax year” instead of terms such as “financial year”, “previous year” and “assessment year”. This is expected to promote easier understanding, which would help make compliance simpler.

Refer to the following table that covers the key highlights of Section 129 of the Income Tax Act, 2025:

Section 129 supports higher education by lowering the financial pressure of education loans via tax deductions on interest payments. The key purposes of Section 129 of the Income Tax Act, 2025 are as follows:

• Promotes higher education by reducing the possible financial burden of availing education loans
• Allows deduction on interest paid, which lowers the overall cost of borrowing for the purpose of higher education
• It encourages investment in education for oneself and family members
• Makes education beyond high school accessible to a wider section of society
• Ensures continued tax benefits from previous provisions
• Provides clarity and certainty to taxpayers already repaying education loans

Under Section 129, an individual can deduct the interest amount he/she is paying on education loans. However, there are certain eligibility criteria associated with it. These include:

In order to claim the deduction under this section, taxpayers are required to provide an interest certificate issued by the lender. This interest certificate typically shows details of the principal and the education loan interest paid by the assessee during the tax year.

Section 129 provides tax relief on education loan interest without imposing an upper limit. This can benefit individuals borrowing for the specific purpose of pursuing higher education.

As per current tax rules, deduction u/s 129 can be availed only if you have opted for the old tax regime. What’s more, tax deduction on education loan interest can be availed in addition to other tax saving investments such as those under Section 123, Section 124, etc. Below are a few key features of this tax benefit:

The deduction under Section 129 allows taxpayers to reduce their taxable income by claiming the interest paid on education loans. However, this is subject to specific conditions and time limits. This period is either

• Up to 8 years, starting from the year when repayment begins.
• Until the interest is completely paid off, whichever is earlier

Let’s consider the below example for better understanding.

If Mr. A completes paying his education loan in 4 years, then the deductions under Section 129 will be applicable for 4 years only. However, if he pays off the loan over a period of 10 years, he will be unable to claim the deduction beyond the 8th year counted from the year in which first repayment was made.

To claim a deduction under Section 129 of the Income Tax Act 2025, the following conditions must be fulfilled:

• The loan must be taken for higher education.
• Interest must be paid from income chargeable to tax.
• The loan must be taken from a financial institution or an approved charitable institution.

Although Section 129 replaces the provisions of Section 80E of the Income-tax Act, 1961, the basic benefits remain the same, with some structural and terminological changes for clarity.

Below table highlights the various differences between Section 129 of Income Tax Act, 2025 and Section 80E of Income Tax Act, 1961:

The process of claiming a deduction under Section 129 is easy, provided the basic requirements related to the education loan and payment of interest are met. Here is the step-by-step process:

In accordance with the Income Tax Act of 2025, Section 129 replaces Section 80E of the original act. This allows the taxpayer to deduct the interest on their education loan for a maximum of 8 years, starting from the year they begin repaying the interest or until the interest is completely paid off, whichever comes first.

So, the borrower has to choose between paying off the education loan as per the applicable repayment schedule or pay the loan off early.

Some people might decide to lengthen their repayment period to extend the period over which tax benefits. This will reduce the individual EMI payments, but, this will result in higher overall interest payout for the education loan.

Alternatively, if you repay the education loan early, the deduction period will conclude sooner, as the benefit is applicable only until the interest fully repaid. However, closing the loan early reduces the total interest payable and helps in achieving freedom from debt faster.

Section 129 continues the same benefit that was earlier available under Section 80E, making education loans more tax-efficient.

Since there are no limits to the interest deduction, it helps taxpayers reduce their taxable income for the tax year. Effective planning, like the timing of loan repayment, can help in maximising tax benefits over the period of 8 years.