Section 129 — Deduction in respect of interest on loan taken for higher education. Successor to s.80E of the 1961 Act.
Section 129 is in Chapter VIII — Deductions to Be Made in Computing Total Income, which runs from section 122 to section 154.
Sub-section (1) allows an individual a deduction for interest actually paid during the tax year on a loan taken by him from a financial institution or an approved charitable institution, provided the loan was for pursuing the higher education of himself or a relative and the payment is made out of his income chargeable to tax. Sub-section (2) limits the run of the deduction to the initial tax year and the seven tax years immediately following it, or until the interest is fully paid, whichever comes first. Sub-section (3) defines the terms that do the gatekeeping: "approved charitable institution", "financial institution", "higher education" (any course of study pursued after passing the Senior Secondary Examination or its equivalent from a recognised school, board or University), "initial tax year" (the year the assessee starts paying interest on the loan), and "relative" (the spouse and children of the individual, or the student for whom the individual is the legal guardian).
It relieves the cost of borrowing to fund higher education, but only the interest cost and only for a bounded number of years, and only where the borrower himself is paying out of taxed income. Restricting "relative" to spouse, children and a ward the individual guards keeps the deduction with the person who took on the education debt.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Period over which the deduction may be claimed | The initial tax year plus 7 immediately succeeding tax years | Or until the interest is fully paid, whichever is earlier; the initial tax year is the year in which the assessee starts paying interest on the loan | 129(2) with 129(3)(d) |
Only interest is deductible — the section says "amount paid as interest", so repayment of principal gets nothing — and there is no monetary ceiling anywhere in the section. The eight-year window is triggered by the first year you actually pay interest, not by the year the loan was sanctioned or disbursed, so a moratorium period pushes the start of the clock rather than eating into it. Keep evidence that the lender is a banking company or notified financial institution or an approved charitable institution, and that the payment came out of your income chargeable to tax; a loan from an employer, a friend or a family member does not qualify.
An individual takes a loan from a bank for his daughter's degree course and starts paying interest in a tax year; that year is the "initial tax year" under sub-section (3)(d). Sub-section (2) then runs the deduction for that year and the seven immediately succeeding tax years, so interest paid in the ninth year earns nothing at all, however large the loan still is. In a qualifying year the whole of the interest paid is deductible — the section fixes no monetary ceiling — but only interest: principal repaid in the same year is outside sub-section (1). Had the loan been for his brother's course nothing would be allowed, because "relative" in sub-section (3)(e) reaches only the spouse, the children, and a student for whom the individual is the legal guardian.
It is claimed as a deduction in the individual's return of income, supported by the lender's interest certificate, and tested in assessment. The section names the lender rather than a form — a financial institution under the Banking Regulation Act, 1949 or a Central Government notification, or an approved charitable institution as defined in sub-section (3)(a).
shall be allowed a deduction of amount paid as interest during a tax year, subject to the provisions of this section, on a loan taken by him from any financial institution or any approved charitable institution
See the full 1961 to 2025 concordance.
See the circulars index.
See the notifications index.