Section 80E of the Income-tax Act, 1961 provides that in computing the total income of an individual, their shall be allowed a deduction of the amount paid by way of interest on loan taken by him from any financial institution or approved charitable institution for the purpose of pursuing his own higher education or higher education of his spouse, or children, or the student for whom he is the legal guardian. The deduction is available for eight assessment years beginning with the assessment year in which the payment of interest on such loan is first made or until the interest is paid in full, whichever is earlier. This deduction is available to every individual who is liable to income-tax. No specific funds are earmarked for the purposes of extending tax concession against interest paid on education loan.

This was stated by Shri Arun Jaitley, Union Finance Minister in written reply to a question in the Rajya Sabha today.

Education loan interest deduction under Section 80E available for interest paid, limited to a prescribed assessment-period. Section 80E allows an individual to deduct interest paid on an education loan from a financial institution or approved charitable institution for higher education of the borrower, spouse, children, or a student for whom the borrower is guardian; the deduction applies only to interest and operates from the assessment year when interest is first paid for a prescribed limited period or until interest is fully paid.