Regarding tax benefit on interest paid to buy second property

Myself & my wife  had invested in under construction Villa & taken housing loan (joint) in Jan 2013. We had taken a housing loan plan in which we pay interest from day 1 (no pre-emi. The principal amount reduces from day 1). I got possession of my property in Jan 2016 & I am giving the house for rent immediately. 

As I understand we can adjust the rent received against interest on borrowed capital we paid in FY2015-2016. That is straightforward. But following are my  questions:

1. What happens to interest we already paid in FY12-13, FY13-14 & FY14-15? As I understand, in case of self occupied property we can claim benefit of pre-emi interest paid before possession for next 5 years post possession. Is it true for rented out (and not self occupied) property as well? So e.g can I add total interest I paid in last three financial years & add 20% of that to interest I paid this FY & show this total as my "interest paid on borrowed capital"?

2. What if I pay my loan in full this FY? If I pay off my loan this year, for next 4 years can I use 20% of interest I paid before possession as "interest on borrowed capital" and deduct it from rent received?
Asked 1 year ago in Income Tax from Bangalore, Karnataka
Dear Sir,

With respect to your details please find following details :

1. You can claim interest paid in the year 2012 - 13 to 2014 - 15 in respective income tax return as loss under house property and get it adjust against any other income up to amount of Rs. 1,50,000/- per annum. 
The working done by you is no where have any legal backup or defined under income tax act for tax benefit.

2. You can claim the amount of principle repayment under section 80C up to Rs. 1,50,000/- & Interest on housing loan of Rs. 1,50,000/-. Once you pay of this loan there can not be any benefit in future years for payment made in current year.
Vishrut Rajesh Shah
CA, Ahmedabad
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Dear Sir,

1. You can claim the quantum of interest paid before possession in 5 equal annual installments for a period of 5 years post possession.

2. If you square off your loan in this Financial Year, then you cannot carry forward the amount of interest for next 4 years.

Hope this clarifies your points.

Regards,
CA Rohit R Sharma
BCOM, CA, LLB-GEN, FAFP.
Rohit R Sharma
CA, Mumbai
1542 Answers
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