Specific Investor Scenario
You have ₹10,000 to invest. You see that your broker allows you to “Buy” ₹50,000 worth of Reliance shares if you select the “Intraday” option, but only ₹10,000 if you select “Delivery.” Why the difference? And what happens if the market closes before you sell those extra shares?
Quick Answer
Intraday Trading (MIS) requires you to square off your position before the market closes at 3:30 PM. Delivery Trading (CNC) allows you to hold the shares indefinitely in your Demat account.
Official Fact: According to the SEBI Peak Margin Circular (2021/2023), brokers are required to collect a minimum percentage of the trade value upfront for intraday trades. While leverage is allowed, it is strictly regulated to prevent systemic risk.
Regulatory Context: MIS vs. CNC
Brokers use specific codes to notify the exchange about your trade type:
- MIS (Margin Intraday Square-off): These trades are marked for settlement within the current trading session.
- CNC (Cash n Carry): These trades are marked for delivery into your Demat account on a T+1 basis.
Comparative Breakdown
| Feature | Intraday (MIS) | Delivery (CNC) |
|---|---|---|
| Duration | Minutes to Hours (Same Day) | Days, Months, or Years |
| Capital Required | Low (5x - 10x Leverage) | High (100% Cash) |
| Risk Profile | High (High Volatility) | Medium (Market Cycles) |
| Settlement | Cash settled (profit/loss) | Security settled (T+1) |
| Ownership | No (Shares not in Demat) | Yes (Shares in digital vault) |
| STT Tax Rate | 0.025% on Sell side | 0.1% on both Buy and Sell |
The “Auto-Square Off” Risk
If you do not sell your Intraday position by approximately 3:20 PM, your broker’s system will Auto-Square Off your trade.
- The Risk: The system will sell your shares at whatever the current market price is, which might be a loss. Most brokers also charge a penalty fee (e.g., ₹50 + GST) for this automatic service.
Taxation Impact
Under the Income Tax Act, 1961:
- Intraday Trading: Classified as “Speculative Business Income.” Profits are added to your regular income and taxed as per your slab rate.
- Delivery Trading: Classified as “Capital Gains.”
- STCG (Short Term): 15% tax if held for less than 12 months.
- LTCG (Long Term): 10% tax (above ₹1 lakh profit) if held for more than 12 months.
Action Items for Investors
- Define Your Goal: Only use Intraday if you have the time to monitor the screen all day. Use Delivery for building wealth.
- Check Margin Rules: Ensure you have the “Peak Margin” required in your account before placing an Intraday trade to avoid penalties.
- Download Your Tax P&L: At the end of the year, download the “Tax P&L” statement from your broker. It will automatically segregate your Speculative (Intraday) and Capital Gains (Delivery) income for ITR filing.
Verification Link
Current SEBI Margin and Settlement Rules: sebi.gov.in/legal/circulars
Verify current status at nseindia.com, bseindia.com, or msei.in before trading.