A contract note is an important document for investors transacting in shares and other listed securities on a recognised stock exchange. A contract note is a legal record of your transaction carried on a stock exchange through a broker.
A contract note serves multiple purposes. Not only does it record transactions but it also provides the details of the transaction in writing. It is a valid bill that accounts for the ‘brokerage’ the broker charges the client for executing the transaction for him in the stipulated security.
The contract note comes with details that enable the investor to spot a particular transaction among the thousands of transactions taking space on the stock exchange and further cross-check the trade information with that provided by the stock exchange.
A contract note starts with the details of the issuing broker. This includes the name, address, exchange membership details and contact numbers of the brokers. The contract note specifically mentions the full name of the client and address, unique client ID along with the permanent account number (PAN).
Among the trade details the contract note provides the trade date, settlement number and contract note number.
The contract note mentions the time and the date on which the trade was executed.
The contract note also provides the details pertaining to brokerage, regulatory charges, stamp duty and service tax on brokerage. The contract note clearly mentions the name of the security and quantity you have bought or sold.
Broker is supposed to send you the contract note within 24 hours. You should always check the contents of the contract note and seek clarifications from brokers for discrepancies.
The contract notes tell you what you have transacted into. There are instances where companies with similar names trade on bourses or multiple instruments issued by one company trade on exchange.
Bad communication between you and the broker at the time of trading may result in wrong securities bought or sold.
By running through the contract note you get to know what you have bought or sold. The contract note can be used to check the demat holdings and ascertain the exact brokerage paid. Contract notes are useful to ascertain the capital gains tax payable.