Contract Note In Stock Market

Contract Note In Stock Market

A contract note in the stock market is a legal document issued by stockbrokers to their clients. A contract note confirms the trade executed on a specific trading day. It helps track the information regarding profit and loss with all the other transactions. 

Contents:

Contract Note Meaning

A contract note is a detailed bill that records all transactions done by a broker on behalf of his client during a trading day. It serves as legal proof of the transactions and includes crucial information like the broker’s name, client’s name, trade time, transaction price, and charges.

For instance, if Mr. Sharma trades shares of company XYZ through his broker, at the end of the trading day, his broker would provide him with a contract note. This note would detail the number of shares bought or sold, the transaction price, the time of the trade, and all charges incurred in the process. 

The contract note helps Mr. Sharma keep track of his transactions, calculate his tax liabilities, and serve as a legal document if any dispute arises in the future.

Contract Note Format

The format of a contract note is standardized as per the guidelines of the Securities and Exchange Board of India (SEBI). It is issued in either physical or electronic format. A typical contract note contains the following information:

  1. Name, address, and SEBI registration number of the broker: This verifies the authenticity of the broker.
  2. Name of the client and client ID: This helps in identifying who the transactions were made for.
  3. Details of the transaction: Includes the date and time of trade, description of the security (name of the company, number of shares, etc.), price, and the total contract value.
  4. Brokerage and statutory charges: It lists out the brokerage charged by the broker and other statutory charges like STT, GST, etc.
Contract Note Format
Contract Note Format

Contract Note Charges

Contract note charges are the costs included in the contract note that the client is obliged to pay. They include the broker’s commission or brokerage, and statutory charges such as Securities Transaction Tax (STT), Goods and Services Tax (GST), and SEBI turnover charges.

For example, if Mr. Sharma buys 100 shares of company XYZ at ₹200 per share, his total investment is ₹20,000. If his broker charges a brokerage of 0.5%, Mr. Sharma has to pay ₹100 as brokerage. In addition to this, statutory charges like STT, GST, and SEBI charges are also applicable. All these charges are mentioned in the contract note.

Importance of Contract Note

The main importance of a contract note is that it serves as a legal document for all transactions carried out by the broker on behalf of the client. It acts as a proof of trade and helps in resolving any disputes that might arise between the client and the broker. Here are some reasons why a contract note is essential:

  • Record Keeping: It aids in maintaining a record of all transactions made on a specific day.
  • Tax Calculations: It helps in calculating capital gains tax since it contains information about the purchase and sale prices of securities.
  • Transparency: It ensures transparency between the broker and the client as it contains all the charges applied on the transaction.
  • Dispute Resolution: In the case of any discrepancies or disputes between the broker and the client, the contract note serves as an essential legal document.

For example, if there is a discrepancy in the charges applied by the broker, Mr. Sharma can refer to his contract note, which clearly lists all the charges, to resolve the dispute. Similarly, while filing his income tax return, he can use the contract note to calculate his capital gains tax.

Contract Note In Stock Market – Quick Summary

  • A contract note in the stock market is a legal document issued by stockbrokers to their clients confirming the trade executed on their behalf on a specific trading day.
  • A contract note serves as a detailed bill and legal proof of transactions, containing crucial information like broker’s name, client’s name, trade time, transaction price, and charges.
  • The format of a contract note, standardized by SEBI, includes the broker’s details, client’s details, transaction details, and the breakdown of charges.
  • Contract note charges are costs included in the contract note that clients must pay, including the broker’s commission or brokerage and statutory charges such as STT, GST, and SEBI turnover charges.
  • The main importance of a contract note is that it serves as a legal document for all transactions, aids in record-keeping, tax calculations, ensures transparency, and helps resolve disputes.
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Contract Note Meaning – FAQs  

1. What Is Contract Note?

A contract note is a legal document that records all transactions done by a broker on behalf of his client during a trading day. It includes crucial information like the broker’s and client’s name, trade time, transaction price, and all charges incurred.

2. Who Sends The Contract Note?

The contract note is sent by the stockbroker who executes trades on behalf of the client. The broker is obligated to issue the contract note at the end of each trading day, detailing all transactions made for each client.

3. How Do You Read A Stock Contract Note?

A stock contract note can be read by understanding its key components:

  1. Broker’s and client’s details, transaction details, and charges.
  2. The transaction details section will show the traded security’s name, number of shares, transaction price, and total contract value.
  3. The charges section will list all costs, including brokerage and statutory charges like STT and GST.

4. What Are The Benefits Of Contract Note?

The contract note provides numerous benefits: it serves as a legal proof of transactions, assists in record-keeping and tax calculations, ensures transparency in charges, and helps resolve any disputes that may arise between the client and the broker.

5. What Does A Contract Note Contain?

A contract note contains the broker’s and client’s details, transaction details like traded security, number of shares, transaction price, and total contract value, and a breakdown of all charges including brokerage and statutory charges.

6. What Is The Purpose Of The Contract Note?

The purpose of the contract note is to provide a detailed and legal record of all transactions carried out by the broker on behalf of the client. It ensures transparency in charges, aids in tax calculations, and acts as a proof of trade in case of any disputes.

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