CA Final Direct Tax Laws Important Questions for January 2027 Exam

Direct Tax Laws requires more than remembering provisions and sections. You need to understand how different provisions apply to practical situations and practise presenting your answers with the necessary calculations and explanations. Working through previous year questions can help you identify recurring concepts and improve your approach to case-based problems.

For the January 2027 CA Final exam, focus on practising important Direct Tax questions alongside regular revision. PW offers CA Final aspirants access to live and recorded classes, batches and learning resources, which they can use alongside dedicated question practice to prepare for the exam.

CA Final Direct Tax Laws Important Questions for January 2027

Practising questions from previous CA Final attempts can help you understand how Direct Tax concepts are tested. The following questions cover practical situations involving business income, deductions, depreciation, capital gains and tax liability.

1. Question 01 [PYQ May 2026]

The statement of the profit and loss of AB Ltd., (a domestic company) which is engaged in the business of Manufacturing, shows a Net Profit of Rs. 52 lakhs for the financial year ended 31st March 2026. The following debits and credits needs to be considered for computing total income of AB Ltd. for AY 26-27:

a) Professional fees amounting to Rs. 2 lakhs debited in profit and loss account for FY 24-25 but was paid on 30th July 2025 in cash has not been debited or credited in the profit and loss account for FY 25-26.

b) The interest amounting Rs. 8 lakhs payable to non-banking financial companies notified for the purpose of Section 43B has been debited in P&L for FY 25-26 even though the same is proposed to be paid after due date of filing return for the AY 26-27.

c) Rs. 3.5 lakhs received as interest on margin money deposited with bank for obtaining bank guarantee to carry on business was credited in profit and loss account for FY 25-26.

d) Loss of Rs. 2,60,000 incurred by way of trading in Futures and Options (Derivatives) in BSE during the FY 25-26 and accordingly debited to P&L for FY 25-26.

e) Legal fees incurred in defending Title of factory premises of the company Rs. 3,70,000 debited in P&L of FY 25-26. The same was incurred and paid during the said FY after deducting TDS as applicable and the TDS was also deposited in the said FY.

f) Development charges of Rs. 95,000 paid to Government on industrial land purchased in the FY 25-26 and accordingly, debited to the P&L account relevant to the AY 26-27.

g) Rs. 3,20,000 paid to the Indian Institute of Science, Bangalore notified for scientific research in term of Section 35(1)(ii) during the FY and accordingly, debited to P&L Account for the FY 25-26.

h) A Machine which was in use since 5 years having WDV amounting Rs. 1.80 lakhs as on 1st April 2025 was discarded on 1st Sep. 2025 for Rs. 10,000. The WDV of the Machine amounting Rs. 1.80 lakhs was reduced from its block of assets of 15% (Block still exits) and Rs. 1.70 lakhs was debited to P&L as loss on sale of Machinery.

Additional Information for which no adjustments has been made in the books of accounts:

1. The Company has received Excise Duty Drawback under the Customs and Central Excise Duty Drawback Rules, 1971 amounting to Rs. 6.5 lakhs during the FY 25-26 against exports made during the earlier financial years.

2. Computer Printer amounting Rs. 90,000 was purchased on 1st Sep. 2025 and put to use on the same day.

Compute Total Income of AB Ltd. for the AY 26-27 under the regular provisions of the Income-tax Act, with necessary explanations assuming that the AB Ltd. has not opted for any concessional tax under special provisions of the Income-tax Act, 1961. Total turnover of AB Ltd. for the FY 23-24 was Rs. 290 crores and during the FY 24-25 was Rs. 410 crores. Ignore the provision of MAT.

Would it be beneficial for AB Ltd. to opt for beneficial tax rates under Section 115BAA for FY 25-26. Support your view with necessary calculations.

2. Question 02 [PYQ Jan 2026]

M Automobile Ltd. (M Auto) is engaged in the manufacture of automobile spare parts at Lucknow. In June 2025, M Auto established a new unit at Patna for the manufacture of automobile accessories. Separate books of accounts are being maintained for both the businesses.

Statement of Profit & Loss (of Lucknow unit) for the financial year ended on 31.03.2026 shows a profit (before depreciation) of Rs. 50 lakhs after the debit/credit of following items:

a) Commission of Rs. 2,50,000/- was paid to Robert, a non-resident, who does not have any office or permanent establishment in India. The payment was made without deducting tax at source. (Important Adjustment)

b) A standard warranty is provided at the time of sale, under which the product would be replaced free of charge, in case of any manufacturing defect detected within the stipulated time. Provision for warranty@ 0.5% of sales, amounting to Rs. 5,00,000 was made during the year.

c) The assessee contributed Rs. 6,00,000/- (20% of the basic salary) to the account of employees under National Pension Scheme.

d) The company issued 10,000 debentures during the year out of which 2000 were convertible in to shares after a period of 5 years. Expenditure incurred on issue of the said debentures during the financial year was Rs. 3,50,000.

e) The company's branch office was located in an old building taken on rent under an agreement with the lessor. During the FY, with the consent of the lessor, the old building was demolished and a new office building was constructed on the same site at a cost of Rs. 20,00,000/-. Under an agreement, the company was permitted to re-occupy the newly constructed office building for a further period of 20 years at the same rent.

Additional information:

1. During the financial year 2025-26, M Auto entered into an agreement with Garg Auto Ltd. As per the agreement, Garg Auto Ltd. has agreed not to engage in the manufacturing of automobile spare parts at Lucknow. On 1.05.2026, the assesse paid Rs. 12 lakhs without deduction of tax at source as non-compete fee to Garg Auto Ltd.

2. Net profit (before depreciation) from the business of automobile accessories of Patna unit was Rs. 25 lakhs for the financial year.

3. Details of plant and machinery (rate of depreciation 15%) owned by the assessee -

Lucknow unit:

Opening WDV as on 1.04.2025 was Rs. 14,75,000.

All the machines were sold in March 2026 for Rs. 15,00,000.

Patna unit:

Old machinery purchased in June 2025 for Rs. 10,00,000. New machinery purchased in August 2025 for Rs. 6,00,000. Assume the company does not own any other fixed asset.

4. Plot of land purchased by the company in FY 2010-11 was compulsorily acquired by the State Government on 10.12.2022. Original compensation awarded was Rs. 10 lakh, out of which Rs. 8 lakhs were received on 10.04.2023 and the balance 2 lakhs on 1.10.2023.

On an appeal made by the assessee, the Court awarded an additional compensation of Rs. 7 lakhs. Out of this, Rs. 4 lakhs were received on 14.10.2023 and Rs. 3 lakhs were received on 1.02.2026. The Court further awarded an interest on additional compensation amounting to Rs. 12 lakhs, the same was received on 20.03.2026.

Compute the total income and tax liability of M Auto for the assessment year 2026-27 under the regular provision of the Income-tax Act applying and explaining the relevant provisions in brief, assuming that the assessee has not opted for any concessional tax rates under special provisions of the Income-tax Act, 1961.

Total turnover of the company for the financial year 2022-23 and 2023-24 was Rs. 300 crores and Rs. 350 crores, respectively. Ignore the provisions of MAT.

Would it be beneficial for M Auto to opt for beneficial tax rates for financial year 2025-26. Support your view with necessary explanations.

CA Final Direct Tax Laws Important Questions PDF

Use the question bank below to practise more CA Final Direct Tax questions with answers. It includes questions from past attempts, allowing you to work through practical problems and review their solutions.

How to Prepare for CA Final Direct Tax Laws for the January 2027 Exam?

A good Direct Tax revision plan should give you enough time to revisit important provisions, practise practical questions and improve your answer-writing speed. You can follow these steps:

1. Revise important provisions: Begin by revisiting the key provisions, sections, deductions, exemptions and tax calculations covered in each chapter. Focus on understanding their applicability and conditions rather than memorising them in isolation.

2. Practise chapter-wise questions: Solve questions from different Direct Tax chapters to understand how individual provisions are applied in practical situations. This will also help you identify topics that need more revision.

3. Solve previous-year questions: Practise questions from past examination papers to understand how concepts are tested and how you are expected to present your calculations and answers.

4. Attempt RTPs and MTPs: Include Revision Test Papers and Mock Test Papers in your preparation. They provide additional practice with practical questions and help you assess your understanding.

5. Review your mistakes: After checking a solution, identify whether the error occurred because of an incorrect provision, calculation, interpretation or application of a tax rule. Rework the question to avoid repeating the same mistake.

6. Take timed mock tests: Practise solving questions within the available time. This will help you manage lengthy computations and leave enough time to review your answers.

7. Revise difficult questions again: Maintain a record of questions that take longer to solve or require repeated attempts. Revisit them during your final revision instead of spending too much time on questions you can already solve confidently.

A good score in CA Final Direct Tax Laws depends on your ability to apply provisions accurately while solving practical questions. Make chapter-wise practice, previous year questions and regular revision part of your preparation for the January 2027 exam.

You can also use PW's live and recorded classes, CA Final batches and learning resources to revisit difficult concepts and strengthen your preparation. Combine these with consistent practice from the Direct Tax question bank to improve your confidence in handling exam-oriented problems.