What is a Contract Note, and How to Interpret It?

Introduction to Contract Notes in Trading

A contract note sits at the center of every trade executed in India’s stock markets, yet most new investors barely look at it beyond the first glance. That changes the moment someone wants to track charges, verify a trade discrepancy, calculate capital gains, or prepare tax documents. All of a sudden, the contract note becomes the most important record they have. 

Meaning and Purpose of a Contract Note

At its core, a contract note is the official proof that a trade actually took place. It contains the exact details of how many units were bought or sold, at what price, on which exchange, and under which order number. 

Why Contract Notes Are Important for Traders and Investors

Traders rely on the contract note for several reasons throughout the financial year. It is the primary reference point for calculating profit and loss on trades. It provides clarity on brokerage, statutory charges, and settlement amounts. 

Regulatory Requirement Under SEBI Guidelines

SEBI mandates that every registered broker must issue a contract note under the format prescribed in SEBI Circular SMD/MDP/CIR/043/96. Brokers must include the exact trade details, verify them with a digital signature, and deliver them to clients within 24 hours of trade execution. 

What Does a Contract Note Contain?

A contract note packs more information than most people realize. It holds the identity of both the broker and the client, the timestamp for every trade, disclosures mandated by exchanges, and a detailed breakdown of charges. 

Key Details Included in a Contract Note

The first part of the contract note typically contains basic trade metadata: the client code, order number, trade number, trade time, instrument type, and the exchange on which the trade was executed. Each element plays a role. 

Buyer and Seller Information

Every contract note clearly identifies the client and the broker. It includes your PAN number, your trading account number, and the broker’s SEBI registration details. 

Trade Date, Order Number, and Trade ID

The contract note timestamps each trade with precision. Order numbers indicate when you placed the trade; trade numbers show when the exchange executed it. 

Price, Quantity, Brokerage, and Transaction Charges

This portion of the contract note captures the core financial details: how many shares were traded, at what price, the total traded value, brokerage applied, statutory charges such as STT, GST on brokerage, exchange transaction costs, SEBI fees, and stamp duty. 

Exchange Details (NSE/BSE) and Settlement Number

Each trade belongs to a specific settlement cycle. Contract Notes mention the settlement number generated by the exchange, allowing traders to reconcile holdings on T+1 or derivatives on expiry. 

Sample Structure of a Contract Note

While the exact layout varies across brokers, the structure remains consistent due to regulatory requirements. A contract note is not creatively designed; it is structured for clarity, auditability, and compliance.

Header Section – Broker and Client Information

The header includes the broker’s legal name, registered address, SEBI registration number, compliance officer details, and contact information. Your own details—name, address, client code, PAN—appear just below it. 

Trade Summary Table – Buy/Sell Details

The summary section presents executed trades for the day. It includes each symbol, market segment, type of order, quantity executed, average traded price, and total traded value. 

Charges Section – Brokerage, STT, GST, and Other Fees

This is one of the most important parts of the contract note. It mentions the exact cost of executing trades—something many beginners underestimate. The cumulative effect of brokerage, STT, exchange fees, GST, and stamp duty can significantly impact net profit. 

Digital Signature and Legal Disclaimers

Modern contract notes end with a digital signature that verifies the document’s authenticity. Without this signature, the note is not considered valid. 

How to Interpret a Contract Note

Interpreting a contract note takes practice. It is not a difficult document, but it packs dense information. 

Understanding the Trade Summary

The trade summary tells you whether you bought or sold shares, the exact execution price, and the value of that trade. 

How to Read the Net Payable or Receivable Amount

Below the financial details, the contract note clearly states whether you owe money to the broker (net payable) or whether the broker owes money to you (net receivable). 

Decoding Brokerage and Statutory Charges

Understanding charges is essential. Brokerage varies based on the broker’s pricing model. STT is levied by the government. Exchange fees are imposed by the NSE or BSE. 

Identifying Settlement Date and Delivery Instructions

The settlement date determines when shares will enter or exit your demat account. Delivery trades settle on a T+1 basis, while intraday trades square off the same day. 

SEBI and Exchange Regulations on Contract Notes

The evolution of contract notes reflects SEBI’s modernization of trading documentation across India. Brokers must comply with strict formatting rules and maintain records for audit trails.

Mandates for Brokers and Trading Members

Brokers must issue contract notes within 24 hours of trade execution, maintain copies for up to eight years, and submit them for regulatory inspection when required. 

Electronic vs. Physical Contract Notes

Electronic Contract Notes, backed by digital signatures, dominate today’s markets. Physical notes still exist but are rare. The e-notes comply with the IT Act provisions and are valid for audits, tax filings, and dispute resolution.

Timeframe for Issuance of Contract Notes

Brokers must send contract notes on the same day or within 24 hours after market close. Any delay qualifies as a compliance failure and must be reported.

Common Charges Shown in a Contract Note

Charges remain among the most misunderstood aspects of trading. Contract Notes clearly document them, ensuring traders know exactly what they paid.

Brokerage Fee

This charge varies across brokers but appears distinctly in the contract note.

Securities Transaction Tax (STT)

STT applies differently for intraday, delivery, options, and futures trades in India. Revised STT rates for derivatives announced in 2024 and sustained through 2025 appear automatically in every contract note.

Exchange Transaction Charges

Charged by NSE or BSE, these track the cost of routing trades through the exchange network infrastructure.

GST and Stamp Duty

GST applies at 18% on brokerage and exchange fees, while stamp duty is based on trade value.

SEBI Turnover Fees

A small fee is charged on total turnover, included transparently in the contract note.

How to Verify the Authenticity of a Contract Note

Authenticity matters. Fake notes can mislead investors or disguise unauthorized trades.

Digital Signature Verification

Every genuine contract note carries a verifiable digital signature. Without this signature, it is invalid.

Cross-Checking Trade Details on Exchange Website

Trades can be verified using the trade confirmation facility on NSE/BSE websites by entering relevant order or trade numbers.

Ensuring Broker Registration and SEBI Compliance

The broker’s SEBI registration number must match the SEBI database to ensure legitimacy.

Difference Between a Contract Note and Trade Confirmation

What Happens Immediately After You Place a Trade

When you place a trade, the platform shows a confirmation message instantly. This is not a contract note. It simply acknowledges that the system accepted your order.

How the Contract Note Acts as a Legal Proof of the Transaction

The contract note is the final, legally binding document. It records the exact execution details after the trade is matched on the exchange.

Why You Should Keep Contract Notes Safely

Importance for Tax Filing and Audit Purposes

The income tax department often requests trade proofs during scrutiny. Contract Notes fulfill this requirement flawlessly.

Role in Capital Gains Calculation

Purchase and sale values must match contract notes for accurate gains reporting.

Documentation for Future Disputes or Clarifications

In rare cases of mismatched positions, contract notes help settle the argument quickly.

Conclusion

Key Takeaways on Understanding Contract Notes

A contract note is not just a receipt. It is a legal and financial foundation for your trading activity in India.

How Reading Contract Notes Improves Financial Awareness

Traders who regularly read and interpret contract notes build a clearer understanding of true trading costs, settlement processes, and regulatory structures.

FAQs on Contract Notes