Do I have to pay taxes when I sell an application in grey market?

Many people do not realize that there is a tax liability on the seller of the application in grey market.

The seller has to pay short term capital gain on the actual profit he made by selling the shares in the stock market.

Let's take an example of an extreme scenario which actually happen on March 21, 2017 in case of DMart IPO.

• DMart IPO application were sold in grey market at Rs 2500 (kostak). Lets say you sold your application.
• You were lucky this time and got allotted 50 shares at Rs 300 per share for Rs 15,000 (1 lot).
• On listing day, the share of DMart got listed at Rs 650. You sold the 50 shares and got Rs 32,500.
• You made profit of Rs 17,500 in your books.
• Out of this profit, you will keep Rs 2500 and have to pay Rs 15,000 to you grey market dealer in cash.

Now here the tax issue comes up.

• You will have to pay short term capital gain tax (at 15%) on the total profit you made by selling the stocks, which is Rs 17,500.
• Your tax liability on this transaction is Rs 2,625

So overall you lost money Rs 125 in this transaction.