What is the Maximum Amount Deduction for Education Loan?

What is the Maximum Amount Deduction for Education Loan?

Know the maximum education loan tax deduction under Section 129, eligibility, claim period, and key tax-saving rules

Written by : Knowledge Centre Team

2026-07-31

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7 minutes read

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Higher education has become one of the biggest financial commitments a family makes, with private medical, engineering, and management courses often running into double-digit lakhs, and overseas degrees costing even more. An education loan helps bridge this gap without forcing you to liquidate savings or compromise on your child's choice of institution or course.

What makes education loans even more attractive is the tax relief they offer. Under the Income Tax Act, 2025, borrowers can claim deductions on the interest paid, easing the real cost of repayment. Let’s understand education loan tax benefits and how you can claim these tax deductions when you file your income tax return.

Key Takeaways

  • You can avail tax benefits on an education loan only on the interest paid and not on the principal amount

  • Education loan tax savings is only applicable for a maximum of two loans taken for two children

  • Tax deductions on tuition fees under Section 123 are only applicable for full-time courses pursued in an educational institution in India; not applicable for overseas education

  • Development fees and transport fees are not eligible for deductions under Section 123

  • Section 129 education loan tax benefits are only allowed for a maximum period of 8 years, counted from the date of repaying the loan

What is the Maximum Amount Deduction for Education Loan?

Quality higher education is absolutely essential today as finding a good job is getting tougher and more competitive every year. However, getting quality higher education doesn’t come cheap. The cost of higher education in a private institute is 3 times the cost compared to a government institution.

Today, a 4-year course in a decent private medical college costs around Rs. 15-20 lakhs; an engineering course in IIT or BITS Pilani will cost you Rs. 10-15 lakhs. If you want your child to complete an MBA from an IIM it will cost you anywhere between Rs. 25-30 lakhs. Cost of higher education abroad comes in the range of Rs. 50 lakh to 1 crore.

Thankfully, an education loan can help you fulfill the dreams of providing quality higher education to your child. You can also get education loan tax savings under Section 80E of the Income Tax Act if certain conditions are met.

Let’s understand education loan tax benefits and how you can claim these tax deductions when you file your income tax return.

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How to get Tax Deduction for Education Loan

Tax Deductions on Education Loan in India

Under Section 129 (earlier 80E) of the Income Tax Act, 2025, you can claim tax deductions only on the interest paid on your education loan during a tax year. You won’t get tax benefits on the repayment of the principal amount.

For example, if the total Equated Monthly Instalment (EMI) of your education loan is ₹12,000, and ₹8,000 is the principal component and ₹4,000 is the interest component, you can only claim ₹4,000 per month. So, for the total EMI paid on the loan, you can claim ₹48,000 for the tax year as a tax deduction.

There is no limit on claiming tax deductions for interest paid on education loans. But you can claim education loan tax savings or deductions for up to 8 years.

Types of Education Loans Eligible for Tax Deductions

You can claim tax deductions on education loans as tuition fees paid to any college, university, or other educational institution under Section 129 (earlier 80E) of the Income Tax Act. 2025. You can take education loan tax benefits on courses enrolled in by you, your spouse, and your children. Whether you have taken an education loan for a course in India or abroad, you can claim tax deductions on such loans in India. The only condition is that the loan must be taken from an RBI-approved financial institution.

There are no restrictions on any particular field of study for taking an education loan. If your child is pursuing any field of study after completing a senior secondary or equivalent exam, you can claim deductions on interest paid on an education loan.

Who is Eligible for Education Loan Tax Savings?

Education loan tax benefits are only allowed to an individual taxpayer. Hindu undivided families (HUFs) are not eligible for tax deductions under Section 129 of the Income Tax Act.

  • Only individual taxpayers are eligible to claim this deduction

  • Hindu Undivided Families (HUFs) are not eligible for tax deductions under this section

  • The loan must have been taken in your name, or for the higher education of your spouse, children, or a student for whom you are the legal guardian

  • The loan must be availed from a recognised financial institution or an approved charitable institution

What is the Maximum Tax Deduction Allowed for Education Loans?

As mentioned above, there is no ceiling on tax deductions for interest paid on education loans. However, taking an education loan has a dual advantage. Apart from the tax deductions on interest paid, parents can claim income tax deductions on tuition fees paid to a school, college, university or any educational institution.

As a parent, you can claim tax benefits of up to ₹1.5 lakh under Section 123 of the Income Tax Act, 2025, on tuition fees paid for your children, up to a maximum of 2 children. If you have more than 2 children, you can claim tax deductions for 2 and let your spouse claim deductions for the remaining. However, to do that, your spouse has to pay the tuition fees for the extra child or children.

Do you know

Did You Know?

There is no upper limit on the interest deduction you can claim under Section 129
 

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How to Claim Tax Deductions for Students on Education Loans

Claiming your education loan deduction under Section 129 of the Income Tax Act, 2025 (earlier Section 80E of the Income Tax Act, 1961) is straightforward, provided you have the right documents and follow the correct steps while filing your return.

Step 1: Collect your interest certificate from your lender at the end of the tax year, as it is the primary document you will need

Step 2: Separate the interest component from your total EMI payments, as only the interest portion qualifies for deduction

Step 3: Open your Income Tax Return form and navigate to the deductions schedule under Chapter VI-A

Step 4: Enter the interest amount paid during the Tax Year under Section 129

Step 5: Verify and submit your return; no physical documents need to be attached, but retain all records in case of scrutiny

Documents Required to Claim Section 129 Deduction:

Before you sit down to file your return, make sure the following documents are in order for a smooth, accurate filing.

  • Interest certificate from your bank or lending institution, clearly stating the interest paid during the Tax Year

  • Loan sanction letter confirming the loan was taken for eligible higher education purposes

  • Repayment schedule issued by the lender showing the principal and interest breakup for each EMI

  • Proof of admission to the educational institution (may be required in case of scrutiny)

  • Lender's registration details confirming the institution is RBI-approved or an approved charitable institution

Conclusion

The benefits of education loan go beyond just funding your child's dream degree. With Section 129 of the Income Tax Act, 2025 (earlier Section 80E of the Income Tax Act, 1961), the interest you repay also works to reduce your tax liability for up to 8 consecutive Tax Years. With no upper limit on deductible interest, it remains one of the most flexible deductions available to individual taxpayers.

An education loan is a must, and it has its advantages, but you don’t have to burden your child with debt if you start investing with a financial goal.

Glossary

  1. Section 129: Tax deduction on interest paid for eligible higher education loans under the old tax regime (formerly called 80E)
  2. Interest Component: The interest portion of an education loan EMI, which is eligible for deduction under Section 129
  3. Equated Monthly Instalment: A fixed monthly payment covering both principal and interest on a loan
  4. Principal Amount: The original education loan amount borrowed, excluding interest charges
  5. Taxable Income: Total income on which tax is calculated after eligible deductions are claimed
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FAQs

Education loans are not entirely tax-free in India, but they do offer a significant education loan tax exemption on the interest component. Under Section 129 of the Income Tax Act, 2025 (earlier Section 80E of the Income Tax Act, 1961), individual taxpayers can claim a deduction on the interest paid, reducing their overall tax liability. The principal repayment, however, does not qualify for any tax benefit.

The education loan interest deduction under Section 129 has no upper limit. You can claim the entire interest paid during a Tax Year. The interest on education loan deduction is available for a maximum of 8 consecutive Tax Years from the year you begin repayment, or until the interest is fully repaid, whichever is earlier. This makes it one of the few deductions under the Income Tax Act, 2025, with no monetary ceiling.

The education loan income tax benefit is available exclusively to individual taxpayers. Hindu Undivided Families (HUFs) and other entities are not eligible. The loan must have been taken for the higher education of the taxpayer, their spouse, children, or a student for whom the taxpayer is the legal guardian. Additionally, the loan must be sourced from an RBI-approved financial institution or an approved charitable institution.

The education loan tax exemption can be claimed starting from the Tax Year in which you begin repaying the loan. You can continue claiming the education loan interest deduction for a maximum of 8 consecutive Tax Years, or until the entire interest is repaid, whichever comes first. Repayments made beyond this 8-year window are not eligible for any further deduction.

No. The education loan income tax benefit applies only to the interest component of your EMI, not the principal repayment. Education loan comes under which section for this deduction? Section 129 of the Income Tax Act, 2025 (earlier Section 80E of the Income Tax Act, 1961) governs this benefit, and it explicitly restricts the deduction to interest paid. The principal portion does not qualify under any section for a tax deduction.

To claim the interest on education loan deduction, obtain an interest certificate from your lender at the end of the Tax Year clearly stating the interest paid. Under which section can you claim deduction for education loan? Section 129 of the Income Tax Act, 2025 (earlier Section 80E) declares the interest amount under this section in the Chapter VI-A deductions schedule of your ITR. No documents need to be attached at the time of filing, but retain your interest certificate and loan sanction letter in case of scrutiny.

To claim the interest on education loan deduction, collect your interest certificate from your lender at the close of the Tax Year, which clearly separates the interest paid from the principal repaid. Education loan comes under which section for this claim? Section 129 of the Income Tax Act, 2025 (earlier Section 80E of the Income Tax Act, 1961) enters the eligible interest amount under this section in the Chapter VI-A deductions schedule of your ITR form. No supporting documents need to be uploaded at the time of filing, but retain all records safely in case your return is selected for scrutiny.

Beyond funding higher education without depleting family savings, the education loan income tax benefit under Section 129 of the Income Tax Act, 2025, allows you to claim a deduction on the entire interest paid, with no upper limit, for up to 8 consecutive Tax Years. The education loan interest deduction effectively reduces the real cost of borrowing, making repayment more manageable. Additionally, timely repayment of an education loan helps build a strong credit history for your child early in their financial life.

There is no income limit or minimum income threshold to claim the education loan tax exemption under Section 129 of the Income Tax Act, 2025 (earlier Section 80E of the Income Tax Act, 1961). Any individual taxpayer repaying an eligible education loan can claim the interest on education loan deduction, regardless of their income level, as long as the deduction does not exceed the total interest actually paid during the Tax Year. However, since the deduction reduces taxable income, its benefit is proportionally greater for those in higher tax brackets.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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