Deductions on Education, Home and Electric Vehicle Loans Income Tax Act, 2025

Interest paid or payable on certain loans can reduce taxable income, but the tax treatment depends on why the loan was taken, when it was sanctioned and whether the taxpayer satisfies the conditions attached to the relevant deduction.

Under the Income-tax Act, 2025, four important loan-related deductions are contained in Sections 129 to 132. These cover higher education loans, certain first-home loans and loans taken for purchasing electric vehicles.

Although these provisions continue under the new Act, taxpayers should not assume that all four are available for loans taken today. The home-loan and electric-vehicle deductions contain historical loan-sanction periods that have already ended.

How have the section numbers changed?

Quick comparison of Sections 129 to 132

Are these deductions available under the default tax regime?

No. Sections 129 to 132 form part of Chapter VIII and are generally unavailable when an individual computes tax under the default regime under Section 202.

An eligible taxpayer must have validly opted out of the default regime and satisfy the individual conditions of the relevant section before claiming these deductions.

Section 129: Interest on loan taken for higher education

Section 129 provides a deduction to an individual for eligible interest actually paid during the tax year on a loan taken for higher education.

The loan must be taken from:

• a qualifying financial institution; or
• an approved charitable institution.

A loan taken informally from a friend, relative or another private person does not qualify merely because the money was ultimately used for education.

Whose education can the loan be for?

The loan can be taken for higher education of:

• the taxpayer
• the taxpayer's spouse
• the taxpayer's child
• a student for whom the taxpayer is the legal guardian

What qualifies as higher education?

Higher education broadly means a course of study pursued after passing the Senior Secondary Examination or its equivalent from a recognised school, board, university or other recognised authority.

The benefit is not limited only to traditional postgraduate courses. A qualifying course pursued after Class XII or its equivalent can fall within the provision.

Education abroad may also qualify where the statutory requirements relating to higher education and the loan are satisfied.

Is there a maximum deduction under Section 129?

Section 129 does not prescribe a separate rupee ceiling such as ₹50,000 or ₹1,50,000.

The eligible deduction is based on the interest actually paid during the tax year, subject to the other conditions of the section.

How long can Section 129 be claimed?

The deduction starts from the initial tax year, meaning the tax year in which the taxpayer begins paying interest.

It can then continue for:

• the initial tax year and seven immediately succeeding tax years
• until the interest is fully paid,

whichever occurs earlier.

Therefore, the maximum statutory period is effectively eight tax years.

Example: Education loan

Aarav takes a qualifying education loan for his daughter's postgraduate studies. He starts paying interest in Tax Year 2026-27 and pays ₹72,000 as interest during that year.

Assuming all Section 129 conditions are satisfied and Aarav has opted out of the default regime, he may claim ₹72,000 as deduction for Tax Year 2026-27.

If the loan interest is fully repaid after five years, the deduction ends at that point; the unused remainder of the eight-year period does not create any further deduction.

Section 130: Additional deduction for certain first-home loans

Section 130 is a narrowly targeted deduction for an individual who borrowed from a qualifying financial institution for acquisition of a residential house property.

The maximum deduction is ₹50,000 per tax year.

Conditions for Section 130

All of the following conditions must be satisfied:

• the loan must have been sanctioned between 1 April 2016 and 31 March 2017;
• the sanctioned loan amount must not exceed ₹35 lakh;
• the value of the residential house property must not exceed ₹50 lakh; and
• the individual must not have owned any residential house property on the date the loan was sanctioned.

Section 130 and regular home-loan interest under Section 22

Interest on a residential housing loan may separately be relevant while computing Income from House Property under Section 22.

For an eligible self-occupied house, Section 22 can allow interest subject to its applicable ceiling and conditions. Section 130 can provide an additional deduction of up to ₹50,000 where its separate conditions are satisfied.

However, the same amount of interest cannot be deducted twice.

Example

Suppose an eligible taxpayer has ₹2,40,000 of qualifying housing-loan interest during Tax Year 2026-27.

If ₹2,00,000 is eligible and claimed under Section 22, the remaining ₹40,000 may potentially be claimed under Section 130, provided all Section 130 conditions are satisfied.

The taxpayer cannot claim ₹2,00,000 under Section 22 and then claim the same portion of interest again under Section 130.

Section 131: Deduction for certain affordable first-home loans

Section 131 provides a larger additional housing-loan interest deduction for qualifying individuals who are not eligible to claim Section 130.

The maximum deduction under Section 131 is ₹1,50,000 per tax year.

Conditions for Section 131

The individual must satisfy the following conditions:

• the taxpayer must not be eligible for deduction under Section 130;
• the loan must have been sanctioned by a qualifying financial institution between 1 April 2019 and 31 March 2022;
• the stamp duty value of the residential property must not exceed ₹45 lakh; and
• the taxpayer must not have owned any residential house property on the date the loan was sanctioned.

Can a new affordable housing loan qualify under Section 131?

No. The loan-sanction window closed on 31 March 2022.

For example, an individual purchasing a first home worth ₹35 lakh with a loan sanctioned in July 2026 does not qualify under Section 131 merely because the property's value is below ₹45 lakh.

The sanction-date condition is mandatory.

How Section 131 can interact with Section 22

Where a taxpayer satisfies both the normal house-property interest rules and Section 131, the deductions can operate on different portions of the qualifying interest.

Example

Suppose Neha has an eligible first-home loan sanctioned in December 2021 and the property's stamp duty value was ₹42 lakh.

Her qualifying housing-loan interest for Tax Year 2026-27 is ₹3,10,000.

Assuming all applicable conditions are satisfied:

• ₹2,00,000 may be considered under Section 22 for the self-occupied property, subject to Section 22 conditions; and
• the remaining ₹1,10,000 may potentially qualify under Section 131.

Since the additional amount is below the Section 131 ceiling of ₹1,50,000, ₹1,10,000 may be deductible under that provision.

Section 132: Interest on loan for purchase of an electric vehicle

Section 132 provides a deduction to an individual for interest payable on an eligible loan taken to purchase an electric vehicle.

The maximum deduction is ₹1,50,000 per tax year.

Conditions for Section 132

The key conditions are:

• the assessee must be an individual;
• the loan must have been taken for purchase of an electric vehicle;
• the loan must have been sanctioned between 1 April 2019 and 31 March 2023; and
• the loan must have been sanctioned by a qualifying financial institution.

For Section 132, a financial institution includes specified banking institutions and a non-banking financial company (NBFC).

What qualifies as an electric vehicle?

Section 132 defines an electric vehicle as a vehicle powered exclusively by an electric motor whose traction energy is supplied exclusively by a traction battery installed in the vehicle.

It must also have an electric regenerative braking system which converts kinetic energy into electrical energy during braking.

Accordingly, the deduction is aimed at qualifying fully electric vehicles rather than simply any vehicle containing an electric component.

Can an old EV loan still qualify in Tax Year 2026-27?

Yes, potentially.

If the loan was originally sanctioned within the period from 1 April 2019 to 31 March 2023 and the other conditions continue to be satisfied, eligible interest payable during Tax Year 2026-27 may continue to qualify until the loan is repaid.

Example

Riya obtained a qualifying EV loan from a bank in January 2023. During Tax Year 2026-27, interest payable on the loan is ₹64,000.

If she has validly opted out of the default tax regime and satisfies all other conditions, the deduction under Section 132 can be ₹64,000.

If the interest payable were ₹1,80,000, the deduction would be restricted to ₹1,50,000.

Interest paid vs interest payable: an important difference

Do loan principal repayments qualify under Sections 129 to 132?

No. These provisions deal with interest.

Education-loan principal does not qualify under Section 129, and EV-loan principal does not qualify under Section 132.

Housing-loan principal may separately qualify under Section 123 read with Schedule XV where all applicable conditions are satisfied, but it should not be confused with the interest deductions under Sections 130 and 131.

Documents taxpayers should retain

Depending on the deduction claimed, useful supporting documents include:

• loan sanction letter showing the original sanction date
• annual interest certificate from the lender
• loan account statement
• proof of interest actually paid for an education loan
• admission and course documents for higher education
• documents showing the relationship with the student
• property purchase agreement
• stamp duty valuation documents
• proof that no residential property was owned on the relevant loan-sanction date, where applicable
• electric-vehicle invoice and registration documents
• documents establishing that the lender is an eligible financial institution

Common mistakes to avoid

• Claiming education-loan principal: Section 129 applies to eligible interest, not repayment of principal.
• Assuming there is a ₹1,50,000 limit on education-loan interest: Section 129 does not prescribe this monetary ceiling.
• Taking an education loan from a relative and claiming deduction: The loan must be from a qualifying financial institution or approved charitable institution.
• Ignoring the eight-year limit under Section 129: The deduction does not continue indefinitely merely because the loan remains outstanding.
• Claiming Section 130 on a recently sanctioned home loan: The qualifying sanction period ended on 31 March 2017.
• Claiming Section 131 because the property costs less than ₹45 lakh: The loan must also have been sanctioned by 31 March 2022 and the relevant statutory test is stamp duty value.
• Claiming Section 132 for a new EV purchased in 2026: The loan-sanction window ended on 31 March 2023.
• Claiming the same interest twice: Interest already deducted under one provision cannot again be claimed under another provision.
• Claiming these deductions under the default tax regime: Sections 129 to 132 are generally unavailable under Section 202's default regime.
• Checking only the purchase date: Sections 130, 131 and 132 specifically depend on the date on which the loan was sanctioned.

Which deduction should you check?

Key takeaway

Sections 129 to 132 continue several familiar loan-related deductions under the Income-tax Act, 2025, but their practical relevance is different.

Section 129 remains relevant for current qualifying higher-education loans and provides a deduction for eligible interest actually paid for up to eight tax years.

Sections 130, 131 and 132, on the other hand, are now primarily legacy deductions. They continue to protect eligible taxpayers who took qualifying loans during the historical sanction windows, but those windows have not been reopened for new loans.

Before claiming any loan-related deduction, check the purpose of the loan, original sanction date, lender, applicable monetary limits, tax regime and amount of interest already claimed elsewhere.

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