BTST (Buy Today Sell Tomorrow) on Zerodha

BTST (Buy Today Sell Tomorrow) is a trading strategy in which an investor buys equity shares on one day and sells them on the next trading day, before the purchased shares are credited to their demat account through the normal settlement cycle. On Zerodha, BTST trades are executed using the CNC product code for both the buy and the subsequent sell order.

Under India’s T+1 settlement framework, shares bought on Day 0 (T) are credited to the buyer’s demat account on Day 1 (T+1). BTST involves selling these shares on Day 1 before the credit arrives, technically selling shares that are in the pipeline of settlement rather than in the demat account. This creates a specific settlement risk called short delivery.

BTST under T+1 settlement

India’s full transition to T+1 settlement (mandatory from January 2023 for all equity securities under SEBI circular SEBI/HO/MRD/2021) changed the timing of BTST relative to the earlier T+2 regime.

Under T+1:

• Day 0 (T): Buy order executed. Shares are “in transit” through the clearing corporation.
• Day 1 (T+1): Shares are credited to the buyer’s demat account. Funds are debited.

A BTST sell on Day 1 means the investor is placing a sell order before the morning credit of shares to the demat account. The shares sold are those expected to arrive from the Day 0 purchase.

Zerodha generally permits BTST on its platform. The sell order on Day 1 is accepted as a CNC sell order based on the pending settlement credit from the previous day’s buy.

Short delivery risk

The fundamental risk in BTST is short delivery. This occurs when:

1. The Day 0 buy seller (the party who sold shares to the BTST investor) fails to deliver the shares to the clearing corporation.
2. The clearing corporation cannot credit the shares to the BTST investor’s demat account on T+1.
3. The BTST investor has already placed a sell order for those shares on T+1.
4. The BTST sell order, when settled, constitutes a short delivery because the shares to be delivered are not in the demat account.

In this scenario, the clearing corporation initiates an auction against the original defaulting seller. The BTST investor’s position is settled at the auction price, which may differ from the sale price obtained on the exchange. The BTST investor may face a settlement shortfall or surplus depending on the auction outcome.

Short delivery is most common in illiquid stocks where seller settlement failures are higher. In highly liquid Nifty 50 stocks, short delivery is rare.

How Zerodha handles BTST

Zerodha permits BTST trades in the equity cash segment using CNC. The Kite platform shows BTST-eligible holdings (Day 0 purchases) in the holdings section with a “T1 holdings” label. These T1 holdings can be sold on Day 1.

Zerodha discloses the short delivery risk in its platform documentation and encourages traders to use BTST only in liquid stocks. The brokerage for a BTST sell trade is zero (as it is a CNC delivery trade). However, if the trade results in a short delivery settlement, additional penalties may apply.

BTST versus intraday MIS trading

BTST is fundamentally different from intraday trading:

Tax treatment

For income tax purposes in India, BTST gains are treated as short-term capital gains (STCG) under Section 111A (if the shares are traded on a recognised exchange and STT is paid), taxed at 15% (as of FY 2024-25). BTST holding period is one to two days, which is below the 12-month threshold for long-term capital gain treatment.

Both buy-side and sell-side STT applies for BTST transactions (0.1% on each side, as delivery-based trades).

STBT (Sell Today Buy Tomorrow)

The counterpart of BTST would logically be STBT (Sell Today Buy Tomorrow), selling shares today and buying them back tomorrow. In the equity cash segment in India, STBT is not permitted for retail investors at recognised exchanges. The reason is that overnight short selling of equity shares is prohibited by SEBI for retail clients. Short selling in the equity segment is only permitted intraday (under MIS), not overnight.

For overnight bearish exposure, traders must use F&O (put options, short futures) rather than STBT. See the companion article STBT and why Zerodha does not allow it for a detailed explanation.

Common mistakes and edge cases

Selling T1 holdings expecting same settlement as regular holdings. T1 holdings from Day 0 purchases settle on Day 1. Selling on Day 1 means the buy settlement and sell settlement overlap. If the original Day 0 buy is not settled for any reason (clearing corporation exception, seller default), the Day 1 sell becomes a short delivery.

BTST in illiquid stocks. Illiquid stocks have higher rates of seller settlement failure. A BTST trade in a small-cap or micro-cap stock with low trading volumes carries materially higher short-delivery risk than the same trade in a large-cap stock.

Multiple BTST layers. If a trader buys on Day 0, sells (BTST) on Day 1, and buys again on Day 1, they now have a new T1 holding. Selling this again on Day 2 creates another BTST layer. Each layer carries its own short delivery risk from the respective prior buy.

Auction settlement penalty. If a BTST sell results in short delivery and the clearing corporation runs an auction, the seller (BTST trader) is obligated to deliver shares at the auction-determined price. If the auction price is higher than the trader’s BTST sell price, the trader absorbs the difference as a loss.

Regulatory context

BTST is not explicitly defined as a separate product category by SEBI or the exchanges; it is a consequence of the settlement cycle mechanics. SEBI’s T+1 settlement circular (SEBI/HO/MRD/2021) and the auction settlement procedures (NSE/MEM/2019 circular on settlement shortfall auctions) govern the mechanics of BTST-related short deliveries. Zerodha’s disclosure of BTST risks is covered under its client agreement obligations under SEBI’s intermediary regulations.

References

1. SEBI circular on T+1 settlement, SEBI/HO/MRD/2021 series.
2. NSE circular on auction settlement for delivery shortfall, NSE/MEM/2019 series.
3. Zerodha support article: “What is BTST?”, support.zerodha.com.
4. BSE notice on T+1 implementation, BSE/Notice/2022 series.
5. SEBI master circular on stock exchanges and clearing corporations, SEBI/HO/MRD/2023.