Whenever you do any transaction of trading or investing in the stock market, you must have noticed that a copy of the contract note is sent to you on email from your broker. Most of us do not pay attention to this contract note but it is important for us in many ways. Through today’s article, we will try to understand the contract note and also know its importance.
What is a contract note?
A contract note is a legal document which contains the details of the trades made by you in the stock exchange throughout the day. Your broker sends you a copy of the contract note on your registered email ID after every trading day. It contains the complete record of trades made by your broker in equities and derivatives on NSE and BSE. It acts as a legal agreement that proves all the stock market transactions done by you and your broker. It mainly contains details of trade terms and conditions, quantity, price, time, charges etc.
You need the password to open the contract note. This password is your PAN number in upper case i.e. capital letters.
Parts of contract note
Almost all brokers’ contract notes include the following sections:
Order Number: Order number contains the serial number of the order placed on the exchange. This serial number is different for every order you place on the exchange.
Order Time: Order time is the timestamp at which the order was placed.
Trade Number: This shows the number of the trade placed in the exchange.
Trade Time: This refers to the time at which the trade was executed on the exchange.
Security/Contract Description: This indicates the name of the security/stock for which the order was placed for trading.
BUY/SELL: This indicates the type of order. BUY for order to purchase security and SELL for order to sell.
Quantity: Quantity i.e. count of stocks traded and count of lots if derivatives are traded.
Gross Rate/Trade Price Per unit: This section details the value of the trade taken, i.e. the price at which the trade was executed.
Net Rate per unit: Its value is the same as Gross Rate because brokerage and charges etc. are shown in a separate column.
The Closing Rate per unit: This part is only for derivative contracts. This represents the derivative contracts that we carry for the next day. This is the closing price of the contract on the day it is carried.
Net total Before Levies: It shows the total amount that has to be paid or charged to the client before brokerage and taxes.
After the details given above, there is a last page which contains information about all types of taxes and brokerage applicable on the transaction. All these are explained below.
How to understand contract note?
Some brokerage is charged by the broker on almost all types of financial transactions. Although nowadays many brokers are providing the facility of free trading, but apart from this there are some taxes and charges which are imposed by the government and which are required to be paid. Let us know about all these charges.
Pay In/Pay Out Obligation: The total debit and credit transactions of the day are given in this column. Credit transactions are represented by + sign and debit transactions are represented by – sign.
Brokerage: The next column lists the fees or brokerage rate charged by your broker on the transaction. Most discount brokers charge 0.05% or Rs 20, whichever is less, on an order.
STT: This part includes STT, the direct tax imposed by the government, which is collected by the broker and deposited to the government. This tax is levied on both buy and sell side of equity delivery and on sell side in intraday and derivatives.
Taxable Value of Supply: This part is made up of three charges which include:
Total brokerage: The amount of total brokerage made on the trade.
Exchange transaction charges: It is charged by different exchanges like NSE, BSE, MCX etc. for providing trading services.
Sebi turnover fees: This is a fee charged by the market regulator.
CGST: Central GST
IGST: Inter State GST
SGST: State GST
Stamp duty: This is a charge levied by the government on transfer of shares, debentures, currency and derivatives.
Net amount payable/receivable: The last part tells about the total amount to be given to or taken from the client. Here also transactions are represented by + and – signs. While the + sign indicates a credit transaction, the – sign indicates debit of the amount.
Why is contract note necessary?
Legal Protection: The contract note acts as a legal document containing details of all transactions undertaken by both the broker and investor parties. In case of any dispute, the contract note can be used as an evidence.
Regulatory compliance: The contract note helps in maintaining transparency and regulation in the financial market. Whenever a broker or investor has to give the details of his transaction to the regulator i.e. SEBI, he can take the record of it from the contract note.
Record Keeping: The contract note also serves the purpose of record keeping. This helps the investor track his investment performance, calculate his taxes and maintain financial records.
Record of brokerage and charges: The contract contains details of the brokerage and charges on all the trades you take. This works to maintain transparency between you and the broker.
Tax Calculation: The contract note can be used to calculate capital gains tax as it contains an accurate record of the total profit or loss incurred.
Conclusion
The contract note plays an important role in recording and tracking our transactions in the financial market. With this, transparency of brokerage and taxes charged on the transactions done by us is maintained and it becomes very easy to track them.
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