CMA Intermediate · Paper 7
CMA Inter Direct and Indirect Taxation Paper 7 Guide
Paper 7, Direct and Indirect Taxation, tests income tax under the Income-tax Act, 2025 (tax year 2026-27) and indirect tax under the CGST and IGST Acts, plus the Customs Act. You solve it by knowing the exact rule, applying it in a clean computation, and writing the section or provision basis for each step.
Paper 7 is one of the four Group I papers and carries 100 marks in a 3-hour exam. Like every Intermediate paper, it opens with a compulsory Section A of 15 multiple choice questions of 2 marks each, with no negative marking. The remaining 70 marks are descriptive and numerical questions, in which you choose which ones to attempt.
The paper has two halves. The direct tax half covers the chapters from Basic Concepts through Self-Assessment and Intimation: residential status, the heads of income, clubbing, set off of losses, deductions, individual and HUF taxation, advance tax, TDS and TCS, and return filing. The indirect tax half covers GST (levy, supply, charge of tax, time and value of supply, input tax credit, registration, invoicing, returns) and the Customs Act. Direct tax questions are mostly numerical. GST questions mix short theory with computations of value, ITC and net liability.
Students usually score well when they treat this as a rules-and-practice paper. Marks come from knowing conditions exactly, such as who is a resident, what is exempt, when ITC is blocked, and then applying them step by step. Students lose marks when they learn rules loosely, mix up old and new provisions, or skip the working notes that earn step marks. Because the paper uses the Income-tax Act, 2025, you must study its terms, such as tax year, and its section numbers, not those of the 1961 Act.
Direct and Indirect Taxation: chapters and topics
Direct Taxation
Basic Concepts, Basis of Charge and Capital and Revenue Receipts
Direct Taxation
Residential Status and Scope of Total Income
Direct Taxation
Agricultural Income
Direct Taxation
Income which does not form part of Total Income
- Basics of Exempt Income under Income-tax Act, 2025
- Exempt Agricultural Income and Its Tax Treatment
- Exempt Receipts of Individuals and HUF
- Exempt Income from Investments, Interest and Capital Receipts
- Exempt Income of Institutions, Authorities and Foreign Entities
- Income of Specific Entities and Newly Established Units
Direct Taxation
Salaries
Direct Taxation
Income from House Property
Direct Taxation
Profits and Gains of Business or Profession
- Chargeability and Basis of Business Income
- Deductions Expressly Allowed in Business Income
- Expenses Not Deductible and Disallowances
- Site Restoration Fund Deduction (Schedule X)
- Special Business Provisions and Presumptive Taxation
- Deemed Profits, Speculation and Business Losses
- Computation of Income from Business or Profession
Direct Taxation
Capital Gains
- Capital Asset and Transfer
- Short-term and Long-term Capital Assets
- Computation of Capital Gains
- Special Cases of Capital Gains Computation
- Exemptions from Capital Gains on Residential House and Agricultural Land
- Exemption on Investment in Specified Bonds (Section 85)
- Other Capital Gains Exemptions and Tax Rates
Direct Taxation
Income from Other Sources
Direct Taxation
Clubbing of Income
Direct Taxation
Set off and Carry Forward of Losses
Direct Taxation
Deductions, Rebate and Relief
- Gross Total Income and Deductions Framework
- Deductions for Savings, Investments and Payments
- Deductions for Specified Incomes and Persons
- Rebate of Income-tax (Section 155)
- Rebate for Certain Individuals (Section 156)
- Relief for Income Taxed Abroad and Other Reliefs
- Impermissible Avoidance Arrangement (Section 181)
Direct Taxation
Taxation of Individuals (including AMT) and HUF
- Residential Status of Individuals and HUF
- Income Taxable in Hands of Individuals and HUF
- Taxation of Foreign Exchange Fluctuation
- Clubbing of Income and Set-off and Carry Forward of Losses
- Deductions from Gross Total Income
- Computation of Total Income and Tax Liability
- Alternative Minimum Tax (AMT)
- Taxation of HUF and Partition
Direct Taxation
Advance Tax
Direct Taxation
Tax Deducted at Source and Tax Collected at Source
Direct Taxation
Filing of Return of Income
Direct Taxation
PAN
Direct Taxation
Self-Assessment and Intimation
Indirect Taxation
Concept of Indirect Taxes
Indirect Taxation
Introduction to GST Law
Indirect Taxation
Levy and Collection of CGST and IGST
Indirect Taxation
Concept of Supply including Composite and Mixed Supplies
Indirect Taxation
Charge of Tax including Reverse Charge
Indirect Taxation
Exemption from Tax
Indirect Taxation
Composition Levy
Indirect Taxation
Time and Value of Supply
Indirect Taxation
Input Tax Credit
Indirect Taxation
Computation of GST Liability
Indirect Taxation
Registration
Indirect Taxation
Tax Invoice - Electronic Way Bill
- Tax Invoice: Meaning, Time and Contents
- Bill of Supply, Credit Note, Debit Note and Other Documents
- Rule 55A: Tax Invoice to Accompany Transport of Goods
- Electronic Way Bill: Concept and When It Is Required
- Generating, Validity, Updating and Cancelling E-Way Bill
- Rule 138A: Documents and Devices to Be Carried in Conveyance
Indirect Taxation
Returns and Payment of Taxes
Indirect Taxation
Customs Act
How to prepare Direct and Indirect Taxation
Split your time between the two halves, and keep rules and practice together. Read a rule, then solve problems on it the same day. Use only material updated for the Income-tax Act, 2025 and the current GST law.
- Start with the foundations: basic concepts, tax year, residential status and the scope of total income. Every later chapter depends on them, so make sure you can decide residential status and taxable scope quickly and correctly.
- Study the heads of income one by one: Salaries, House Property, Profits and Gains of Business or Profession, Capital Gains and Other Sources. For each head, write a one-page sheet with what is taxable, what is deductible, and the computation layout.
- Learn the exempt items next: agricultural income and income that does not form part of total income. These are favourite MCQ areas, so list each item with its exact condition.
- Move to the total income chain: clubbing, set off and carry forward of losses, then deductions, rebate and relief. Practise full computations for individuals and HUF, including AMT where applicable.
- Cover the compliance chapters together: advance tax, TDS and TCS, PAN, return filing, self-assessment and intimation. Make a table of who deducts, when, and how it is deposited and reported, using the rates and limits in the current Act.
- Start GST with levy, supply (including composite and mixed supplies), charge of tax and reverse charge, then time and value of supply. Solve small value-of-supply problems until the steps are automatic.
- Do input tax credit, computation of GST liability, registration, invoicing, e-way bill, returns and payment of tax as one block. Practise the full liability computation: output tax, eligible ITC, set-off order and net cash payable. Then read the Customs Act chapter for definitions, valuation basics and procedures.
- In the last weeks, solve full 3-hour papers. Attempt Section A in 30 minutes, then choose five descriptive questions, and review every error against the rule it breaks. Revise your rule sheets daily.
Time management in the exam
- Spend about 30 minutes on Section A. MCQs carry 2 marks each and there is no negative marking, so answer every one. Skip a slow computation MCQ and return to it.
- In the descriptive section, read all questions first and pick the five you can score best. Mix numerical and theory choices, and cover both direct and indirect tax.
- Give each 14-mark question about 25 to 30 minutes. Stop at the limit, even if a sub-part is unfinished, and move on.
- Start every numerical question with its layout: heading, the heads of income or the GST steps. Fill in the easy lines first so you collect step marks before the hard lines.
- Write working notes in a clean, numbered form beside the answer. Do not spend time on long theory preambles; state the rule and apply it.
- Keep the last 10 to 15 minutes for checking totals, units in rupees, and that you have attempted exactly the required number of questions.
Mistakes that cost marks in Direct and Indirect Taxation
Using the Income-tax Act, 1961 terms and section numbers
Fix: Study only from material updated for the Income-tax Act, 2025. Use the term tax year, and cite the new section numbers only when you are sure of them.
Getting residential status wrong at the start
Fix: Write the conditions in order, test each one on paper, and state the status before computing anything else.
Skipping working notes in income computations
Fix: Show each adjustment as a separate line or working note. Step marks are awarded even if the final figure is wrong.
Treating GST as theory only and ignoring ITC and liability sums
Fix: Practise value of supply, ITC eligibility and net liability problems regularly. Learn blocked credits and the order of utilisation as exact rules.
Mixing up time of supply, place of supply and value of supply
Fix: Write one line for each: when tax is due, where the supply is taxed, and on what amount. Check which one the question is asking before you answer.
Leaving Customs and compliance chapters for the last day
Fix: Schedule them early. Make short notes on definitions, procedures, due dates and TDS or TCS rules, and revise them weekly with MCQ practice.
Direct and Indirect Taxation: frequently asked questions
How many marks is Paper 7 Direct and Indirect Taxation?
It is a 100-mark paper with a 3-hour written exam. Section A has 15 compulsory MCQs of 2 marks each, which is 30 marks. The other 70 marks are descriptive and numerical questions.
Which Act is used for income tax in this paper?
For the June 2027 term, income-tax questions use the Income-tax Act, 2025, which governs income from 1 April 2026 (tax year 2026-27). Use its terms and section numbers, not those of the 1961 Act. GST questions use the CGST and IGST Acts.
Is there negative marking in the MCQs?
No. Neither the question papers nor the ICMAI prospectus provide for negative marking. You should attempt all 15 MCQs, and make an informed guess when you are unsure.
What is the passing mark for this paper?
You need at least 40% in each paper of your group, and 50% aggregate across the non-exempted papers of that group. So you must clear 40 marks in this paper, and your group total also matters.
Should I study direct or indirect tax first?
Most students start with direct tax because it has more chapters and needs longer practice, then move to GST and Customs. Whatever order you pick, give both halves regular revision, since both are tested.