The price paid by an IPO applicant before the IPO shares are listed on the stock market is known as Kostak rate.
XYZ Company, for example, has an IPO. The issue price for each share is Rs 100 In the next 15 days, the issue will be listed.
Some people don't want the 15-day wait to trade shares in XYZ Company. They began buying and selling shares with people they knew. These truncations create a gray market for IPO shares before they are listed.
The buyer can sell the entire IPO Application, which is one way to sell shares on grey market. An investor may have applied for shares worth Rs 2,00,000. He doesn't know how many shares he will be allocated or what listing gains he might get.
Another side is a buyer that says they are willing to take the risk. I would like to sell you your Rs 2L IPO application for Rs 5000. If the seller is willing to agree, he can make the deal and receive Rs 5000. The Kostak is Rs 5000. In almost all cases the buyer requests that the seller sell the shares and settle the difference.
Tax liability is still with the applicant seller. If the difference is large, this could reduce your profits. Let's say you are a seller. If you make Rs 30,000 in profit on the listing day, then you must pay Rs 25,000 to the buyer (Rs 30,000 to Rs 5000). Taxes on Rs 30,000 are your responsibility. The rate of 20% can be as high as Rs 6000. This transaction could lead to a net loss of Rs 1,000