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Importance of Contract Note In Stock Market, Hidden Charges and Taxes In Trading, Contract Note for ITR.

Contract Note – It’s not just any mere document, It has a great value.

To realize the importance of contract notes, we need to go a bit backward to the era when shares of companies were bought and sold in physical form. That is during the early days when you purchased shares of any company you were given a Physical share certificate, which you could consider valuable similar to the stamp paper or an FD certificate. The Physical share certificate shows your claim on the company and will indicate a lot of information like the number of shares you bought, the Unit price of buy, the Date of Buying, Other charges involved, the Total amount you paid, and much more. So when you need to sell the shares, you were supposed to return your original share certificate to facilitate the trade.

With advancements in technology, we all know that the physical certificates vanished and the shares are now being traded in a dematerialized format. The shares we buy get stored in our Demat account within depositories and get transferred to the respective buyer when we sell it. The Demat account acts as a digital locker to store our shares. 

Buying and selling of shares happen with a click nowadays, and in such a fast pace transaction we might not actually know the exact price at which the trade takes place (Unless we place a limit order). Also when we buy the same stock multiple times, the brokers will reflect only the average buy of that stock in your Holding sections, you will not be able to track the exact price at which you traded every time.

In addition to the trade value, the broker will take away additional amounts from you as brokerage, transaction charges, Taxes, and other miscellaneous regulatory charges. Now you might think, it would be better if we get something like an invoice when we trade shares which reflects all the financial details of the trade performed. Yes !!! That shows the significance of Contract Note, which is a legal document that reflects all the financial details of the trade you performed, you could imagine it to be something like a grocery bill/invoice reflecting all details of your purchase. 

The importance of the Contract note not only lies in reflecting the financial details of the trade but also its proof of your possession or ownership of the shares you bought. Suppose you buy 10 shares of Reliance from Zerodha or any other broker and your broker has given you the contract note for the trade indication details of the purchase of that 10 shares. Suppose after some period, when you check your holdings it is showing only 8 shares of Reliance, due to some technical glitches or any reason. You will definitely intimate this issue of missing 2 shares of Reliance to your broker and they may ask you to produce the contract note to verify your claim of 10 Shares in Reliance is genuine and will take up the issue and resolve it. If you have to forward the case to SEBI, they will also ask for the contract note to prove your ownership of shares in the company. We hope now you have understood the significance and importance of Contract Note, it not only reflects the financial aspects of the trade but also serves as a document indicating your ownership of the shares traded.

Now we believe that you have got to know regarding the importance of Contract Note. But you may ask, who is responsible for issuing the Contract Note and How will you get it?

As per SEBI regulation, your broker (Zerodha / Upstocks / Angel Broking/others) is responsible to send you the contract, not within two working days of the transaction, and you receive it in your registered mail id with your broker. So make sure that all Stock Market participants have registered a valid email id with your broker, to receive the Contract note on time. In addition to Contract Note, nowadays the Exchanges / Depositories (NSDL / CDSL) will send you by email the details of the trade you performed on the respective exchange on the same day if traded. These measures are to improve the transparency of the trades being performed on the secondary market and for the protection & empowerment of the secondary market participants.

Let’s move on and get some more details about all the relevant information one could find in a Contract Note. Given below is a Contract Note for a trade executed, so let’s have a look into it and analyze more.

As you could see below, it will Indicate the Registered Address, Contact details, Licence, and other information about your Broker who issues the Contract note. And your account, PAN Card details, etc on the Top Section.

The Table on the centre portion reflects the details of the trade performed. Like Security Traded (KAJARIA CERAMICS in this case), type of trade (Buy/Sell), Quantity of shares traded,Order Placing Time, Trade Execution time, Trade Price, Exchange where trade performed (NSE/BSE; NSE in this case), Brokerage, Net Price for Trade etc. 

The Bottom table actually shows the complete financial details of the trade performed. It includes the Net value of Transaction (Debit of 375.50/-Rs for Purchase of 1 Share in this case) Brokerage, Taxes, SEBI Turnover Fees, Stamp Duty etc. as shown below. One thing to note is that other than Brokerage rest majority of the charges levied on the investor are fixed by the authorities (like CGST and SGST at 9%, Stamp duty is a fixed % every State, STT is a fixed % of the trade value), so the major variable is the brokerage which if is high could potentially drain more amount of your money.

Now we believe that you have some valuable knowledge about the Contract Note, its significance and Details of information which are mandatory to be disclosed in it. One additional thing to keep in mind is that we have to submit the Contract Notes to the Income Tax department while filing ITR, so it’s a good practice to secure all your Contract notes in a separate folder or as a categorised email for your convenience in reviewing the same at a later period of time.

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