When selling an application in grey market, do I need to pay taxes?

Many people don't realize that the seller of an application in grey markets is subject to tax.

The seller must pay short-term capital gains on the actual profit made from selling shares in the stock exchange.

Let's look at DMart IPO as an extreme example.

• DMart IPO applications were sold on grey market for Rs 2500 (kostak). Let's say that you have sold your application.
• Lucky you! You got 50 shares at Rs 300 each share for Rs 15,000 (1 lot).
• The share of DMart was listed at Rs 650 on its listing day. The 50 shares were sold and you received Rs 32,500.
• Your books made a profit of Rs 17.500
• You will receive Rs 2500 as a profit and Rs 15,000 to your grey market dealer in cash.

Here comes the tax issue.

• Short term capital gain tax (at 15%) will be payable on the total profit from the stock sales. This is Rs 17,500.
• This transaction will result in Rs 2,625 tax liability

In this transaction, you have lost Rs 125.