Education is one of the strongest investments in a family’s future, and the Income-tax Act, 1961 recognizes this through Section 80E, which provides a deduction for interest paid on education loans. However, the scope is precisely worded and has to be interpreted strictly, as deductions are exceptions to the charging provisions.
This note explains eligibility conditions, statutory language, interpretations, exclusions, judicial position, and compliance safeguards around Section 80E.
Statutory Provision
Section 80E(1) of the Income-tax Act, 1961:
“In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, by way of interest on loan taken by him from any financial institution or approved charitable institution for the purpose of pursuing his higher education or for the purpose of higher education of his relative.”
Explanation (f) defines “relative” as:
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the spouse and children of that individual; or
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the student for whom the individual is the legal guardian.
Eligibility Conditions (Strictly Construed)
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Who can claim:
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Only individual assessees (not HUF, firm, company).
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Must be the borrower under the loan agreement.
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For whom:
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Self (assessee’s own higher education).
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Spouse.
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Children (biological/adopted).
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Legal ward (where assessee is appointed guardian).
❌ Not covered: Brother, sister, nephew, niece, cousin, or any other relative.
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Nature of loan:
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Loan must be from a financial institution (banking company / notified financial institution) or an approved charitable institution.
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Loan from employer, friends, or relatives not eligible.
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Purpose:
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Exclusively for “higher education” (studies after Senior Secondary, in India or abroad).
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Includes tuition, hostel, library, and course-related fees.
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Deduction quantum:
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Only interest component is deductible (not principal).
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100% of actual interest paid in the relevant year.
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Time limit:
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Maximum 8 consecutive years beginning from the year in which repayment of interest starts, or until interest is fully repaid (whichever earlier).
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Judicial & Interpretative Position
(a) Principle of Strict Interpretation
The Supreme Court in CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. (1962) held that tax exemptions and deductions must be construed strictly and cannot be extended by analogy.
➡️ Therefore, inclusion of siblings within Section 80E is impermissible without legislative amendment.
(b) Sibling-Funded Education Loans
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No judicial authority (SC/HC/ITAT) has recognized Section 80E deduction where an assessee pays interest on a loan taken solely for a brother’s or sister’s education.
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Multiple tax commentaries and authoritative platforms uniformly confirm this limitation:
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TaxGuru (2025): “Parents, siblings, friends — not covered under 80E.”
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Aditya Birla Capital (2023): Deduction not allowed for siblings, unless you are the legal guardian.
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LiveMint (2017): Brother’s loan for sister’s education not eligible under 80E.
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(c) Co-Borrower / Guardian Exception
If an assessee is a co-borrower with the student (e.g., parent co-signs with son/daughter) or is a legal guardian, deduction is permissible provided all other conditions are met.
Practical Scenarios
| Situation | Deduction under 80E? | Reason |
|---|---|---|
| Loan in own name for MBA abroad | ✅ Allowed | Self higher education |
| Loan in parent’s name for child’s engineering | ✅ Allowed | Children covered |
| Loan in individual’s name for spouse’s MS | ✅ Allowed | Spouse covered |
| Loan in guardian’s name for ward | ✅ Allowed | Legal ward covered |
| Loan for brother’s medical studies | ❌ Not allowed | Sibling not included in definition |
| Loan from employer or relative | ❌ Not allowed | Not from financial institution/approved charitable institution |
Compliance Checklist
✔ Loan must be from bank/financial institution/approved charitable institution.
✔ Claim only interest portion (obtain interest certificate from lender).
✔ Deduction available for max 8 years from repayment start.
✔ Keep records of loan agreement + repayment proofs.
❌ Do not claim if loan is for sibling, friend, or relative not specified in statute.
❌ Do not claim on principal repayment.
Key Takeaways
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Section 80E is a narrowly tailored deduction—confined to self, spouse, children, or legal wards.
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Siblings are outside its ambit, with no judicial precedent expanding the scope.
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Deduction covers only interest, up to 8 years, and only for loans from eligible institutions.
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Compliance requires documentary support: loan agreement, repayment schedule, interest certificate.
Conclusion
Section 80E reflects legislative intent to incentivize investment in education but within defined family relationships. While the spirit of the law may appear broad, the courts and tax authorities apply a strict interpretation. Unless Parliament amends Section 80E, loans for siblings’ education remain ineligible.
For taxpayers, the safe approach is clear: plan educational financing such that the eligible borrower is the parent, self, spouse, or legal guardian—ensuring both tax efficiency and compliance.
