I want to pay my friends to apply for an IPO through their demat account, in order to increase my allotment chances. I trust these people enough to make an informal deal, and I will not take their broker username/pw, etc.
Is it legal for them to sell their IPO application (both listing gains and losses) for a fixed predetermined amount?
It is just a normal business sale right? As long as they report the income (fixed amount) in their ITR, and I report the income (listing gains and losses) in my ITR, is it fine?
@nithin If you cannot comment on it’s legality, are you aware of any regulations that forbid this?
I know this is definitely not regulated. Am just asking if there is a regulation that forbids this which TQ&A members might have come across in the many years of experience in the markets.
Assuming your friend got the allotment and a listing gain of 100% was recorded. Now you have 2 options.
Ask him to sell and book the profit. Amount will be transferred to you since you funded the IPO.
Get the shares transferred to your demat account.
In the first option, the capital gain tax, after other cost which will be adjusted from the profit ofcourse, will be reported in his ITR but in actual he never enjoyed those profits. Even though you pay the income tax if applicable.
In the second option, the tax liability will be transferred to your head.
So how would you do it? Share if you know any other way, for educational purposes ofcourse.
I intended for them to sell immediately after listing only.
Yes you are right. I thought about this. The plan was to maintain a separate account for applying to IPOs. That broker’s complete P&L will simply be removed from their total P&L. And I will report the same in my ITR.
Buy yeah it is clear that I would need business registration. It does seem to be a bit of a grey area and apparently this is how grey market IPO works and there are many local brokers for this. Not worth it. Thanks for the replies!
It’s a bit contradictory. How can you report the profit which got booked from your friend’s P&L. Let me assume that you did this and as long as you’re reporting your income and pay taxes, no government will question you.
But with the same logic your friend won’t report the profit in their ITR and this might trouble him. He/she is not reporting the income which is transparently registered and can also be tracked in AIS.
A separate account should be a joint account or a company account. I’m not sure about how taxation works on joint accounts.
Yes , you are right @themanishshaw If the friend gets allotted just transfer the shares and pay the ITR by your income bcoz whoever the share gets transferred they have to file the ITR with capital gain and etc . Example your friend gets the share for 100 and listed at 200 , so for 100rs profit you will be paying the ITR bcoz the OG cost will be moved to the person who got the shares transferred .
Or I have this doubt ? can it be possible @nithin
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If person A is allotted of shares from IPO & Can we transfer the shares before listing in market off market via demat and how tax is processed . Suppose listing on monday but shares were deployed on friday and can the person transfer it before listing
Big Inspiration sir , Take care you health and prosperity <3 , Being in heights still answering a common man’s problem defines ZERODHA’s Success . You and Nikhil are inspiration for how 2 brainy minds align for success