What is taxed and what is not?

According to the Income Tax Act, it is the interest component of any loan be it home loan, personal loan etc that has a tax deduction option and not the principle component.

But for example, if you have borrowed an education loan for your family members then, as per Section 80E, an assessee can claim a deduction in respect of the interest paid on the loan taken for the purpose of pursuing higher education and of his/her spouse and children for eight assessment years, the first year being the assessment year in which he/she starts paying such interest. Such loan has to be from a financial institution or approved charitable organization else, you will not be entitled to claim deduction in respect of the interest paid on such loan.