What will happen if I don't square off my Option contract on expiry day?
For derivative contracts where delivery based physical settlement is not mandatory, the implication is as follows -
If you have bought options -
In the money - If on expiry the option is In the money (ITM) and the STT ( Securities transaction tax) on the option is more than the Intrinsic value of the Options, we will not let the option be exercised and the Option contract will expire worthlessly. If the Intrinsic value is higher than the STT, the option contract will be exercised and the proceeds will be credited to your trading account.
Even for At the money contracts(ATM), if the STT is higher than the intrinsic value, we will not let the contract be exercised.
Out of the money - OTM option contracts will expire worthlessly. You will lose the entire amount paid as premium
If you have shorted options - STT for options is only on the sell side. So you would've paid STT when initiating the short. So there will be no STT impact on expiry. Depending on the moneyness of the option contract, you get to keep the premiums received.