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Grey Market In India: Everything You Need To Know

Grey Market In India: Everything You Need To Know

Shruti Gupta

What is the Grey Market?

Grey Market IPO is an unofficial market in which individuals buy and sell IPO shares or applications before they are officially available for trading on the stock exchange. There are no rules governing this unofficial over-the-counter market. Everything is done on a one-to-one basis using cash. Third-party firms such as SEBI, Stock Exchanges, or Brokers are not involved in such transactions.

Traders in the grey market make unauthorized offers and bids on the company’s stock. When a company’s equity is offered to traders after the IPO date and price band announcements, it is referred to as grey market stock. Since there is no official platform or set of rules for grey market trade, it is done within a small group of people. ‘Grey Market Premium’ and ‘Kostak’ are two popular words used in the IPO grey market.

What is the Grey Market Premium?

The premium amount at which the grey market IPO shares are exchanged is known as the grey market premium (GMP). The IPO GMP is determined by taking into account the demand for a company’s share that is about to go public. 

In the unregulated market, the grey market starts informally as soon as the IPO date and price band are published. Although this may vary based on the market, demand, and volume of subscriptions, investors always take the premium into account before making an IPO investment. The IPO’s potential response on the day of listing is reflected in the GMP. 

What is the Kostak Rate?

The premium amount at which the grey market IPO shares are exchanged is known as the grey market premium (GMP). The IPO GMP is determined by taking into account the demand for a company’s share that is about to go public. 

In the unregulated market, the grey market starts informally as soon as the IPO date and price band are published. Although this may vary based on the market, demand, and volume of subscriptions, investors always take the premium into account before making an IPO investment. The IPO’s potential response on the day of listing is reflected in the GMP. 

What is Subject to Sauda?

The Grey market includes a “Subject to Sauda” clause in addition to the Kostak rate, which is the price at which an investor purchases IPO shares. The agreement will only be deemed enforceable if the buyer receives the allocation during the listing process, as stated in the subject to sauda clause. When an investor purchases IPOs before their listing on a stock exchange, this is referred to as sauda. 

Furthermore, according to subject to sauda clause, if the buyer is not selected for the IPO listing, they are under no obligation to pay the Kostak Rate for the IPO application that they have purchased from the seller. Sauda has a direct link to the grey market premium at the time of an IPO share trade.

Types of Trading in Grey Market

There are two ways to trade in the grey market before their listing on the stock exchange:

  1. Buy or sell IPO shares on the grey market
  2. Buy or sell your IPO application at a certain price

How does Grey Market work?

  1. IPOs allow investors to apply for shares. They face a financial risk since they may not be assigned any shares or they may be allocated shares but the shares may trade at a price lesser than the issue price. They are known as sellers.
  2. Few people think the share is worth more than what it was originally issued for. Even before the shares are distributed via the IPO allotment procedure, they begin to accumulate them. They are known as buyers.
  3. Buyers place orders to purchase IPO shares at a specific premium through grey market dealers.
  4. The dealer then gets in touch with the sellers who submitted applications for the IPO and asks them if they would be ready to sell their shares for a premium.
  5. In the meantime, the sellers may sell the IPO shares to a grey market dealer and book the profit if they prefer the premium and are unwilling to take on the risk of a stock market listing. The seller and the grey market dealer must, however, agree on a final price.
  6. Once the dealer has obtained the seller’s application details, he notifies the buyer that he has purchased a specific quantity of shares from the sellers on the black market.
  7. Sellers may or may not receive a share allotment after the allocation is complete.
  8. If the investor receives shares, he may transfer the shares to a Demat account or receive a call from the dealer requesting that he sell them at a specific price.
  9. If the investor is selling the shares, the settlement is completed based on the gain or loss and the price that buyers and sellers agreed upon on the grey market.
  10. If the sellers are not allotted shares, the transaction is canceled without any payment.

Conclusion

We can conclude that the performance of the stock in the grey market is a good indicator of how it will perform on the public market. In India, it is legal and unofficial to trade in shares in the grey market. With a grey market IPO, a lot of people and companies that are releasing an IPO are successful.

Understanding The Tax Structure of India

Understanding The Tax Structure of India

Shruti Gupta

What is Tax?

A tax is a mandatory fee imposed by the Government of India on the people and companies to generate revenue. In India, taxes are levied at every level, from local to municipal authorities, and are regarded as one of the main sources of revenue for the government.

The Indian Constitution addresses the supremacy of the state and central governments to levy taxes. It gives the government of our country the right to levy taxes. There are broadly two types of taxes: direct tax and indirect tax. 

Direct Tax 

A direct tax is levied by the government on an individual or entity that is based on the taxpayer’s ability to pay. Direct taxes are progressive where people with higher earnings pay higher rates than people with lower incomes. It can be levied on income, property, sales, and other financial transactions and can’t be transferred from one party to another. 

Types of Direct Taxes

  1. Income Tax Act:

The Income Tax Act of 1961 is often known as the IT Act of 1961. It determines your income tax slab as well as the amount you can save from your income through investments. This act taxes income from any source, including house property, salaries, business income, and capital gain. The tax benefits and deductions that you can receive on your investments and expenses are also defined under the IT Act. 

  1. Wealth Tax Act:

In India, a wealth tax is a tax imposed on the assets of people who meet a specific threshold for wealth. However, it was repealed in the 2015 budget (effective FY 2015-16) since the expense of tax recovery exceeded the benefit. It was replaced with a 12% surcharge on people who earn more than Rs. 1 crore annually. It also applies to businesses with annual sales of more than Rs. 10 crores.

  1. Gift Tax Act:

The Gift Tax Act, enacted in 1958, imposed a 30% tax on presents such as stocks, jewels, and real estate. However, this tax was abolished in 1998. Now, gifts received from family members and local governments are exempt from taxes.

  1. Corporate Tax:

Corporate tax is a direct tax applied to the income of companies registered in India. In India, the corporate tax rate is now 30% for domestic businesses and 40% for foreign businesses.

  1. Securities Transaction Tax (STT):

Securities Transaction Tax (STT) is a tax charged on the purchase and sale of securities such as stocks, mutual funds, and derivatives on registered stock exchanges in India. The STT rate changes depending on the type of security being traded. 

  1. Capital Gains Tax (CGT):

A capital gains tax is levied on the profits earned from the sale of capital assets, such as stocks, bonds, real estate, or other investments. The tax rate is determined by the asset’s holding period and the type of asset being sold. 

Indirect Tax

An indirect tax is imposed by the government on a taxpayer for goods and services rendered. In contrast to direct taxes, indirect taxes are transferable from one person to another and are not imposed on the taxpayer’s income, revenue, or gain.

Types of Indirect Taxes

  1. Sales Tax:

Sales tax was a type of consumption tax paid on the sale of goods and services. It is usually expressed as a percentage of the item’s retail price. 

  1. Service Tax:

Service tax was announced in 1994 as part of the Finance Act under section 65. It’s a type of tax that the government collects after paying for taxable services rendered by businesses including restaurants, taxi services, travel agencies, and cable providers. 

  1. Goods and Service Tax (GST):

GST is a consumption-based tax levied on goods and services at each stage of the supply chain. It is a multi-stage, destination-oriented tax applied on every value addition, replacing multiple indirect taxes such as VAT, excise duty, service taxes, and so on.

  1. Value Added Tax (VAT):

VAT, or commercial tax, was levied at all stages of the supply chain, except for zero-rated commodities such as food and essential pharmaceutical drugs. State governments enforced it, with each setting its tax rates on products sold in the state.

  1. Customs Duty and Octroi:

Customs duty is levied on imported items to ensure that the goods entering the country are taxed. Octroi, enforced by state governments, serves a similar goal but focuses on commodities crossing state boundaries within India.

  1. Excise Duty:

In India, excise duty, also referred to as Central Value Added Tax or CENVAT, is levied on manufactured goods. It applies only to domestically produced goods. 

Conclusion

Tax is an integral part of any country, serving as the financial backbone that supports the functions and services of governments. Revenues from taxes are beneficial for several reasons, including national development, infrastructure improvement, social advancement, and welfare services. Now that you’ve read this blog, you should have a good understanding of the tax structure in India.

Fssai (Food Safety and Standards Authority of India)

Fssai (Food Safety and Standards Authority of India)

Shruti Gupta

FSSAI stands for Food Safety and Standards Authority of India. In 2006 the Ministry of Health &Family Welfare, Government of India introduced, The Food Safety & Standards Act, to improve the hygiene and quality of food which has brought tremendous amount of changes in the food industry. As per the Act, no person shall commence or carry on any food business except under a FSSAI license or FSSAI registration.

Types of FSSAI License
Based on the turnover, scale of business and the type of activity the food business can obtain FSSAI registration or FSSAI license for themselves. Following are the criteria specified in rules in this regard-

FSSAI Registration
FSSAI registration is required for all petty food business operator. Petty food business operator is any person or entity who:
• Manufacturers or sells any article of food himself or a petty retailer, hawker, itinerant vendor, juice stall, sweets shops or temporary stall holder; or
• Hawker selling packaged or freshly prepared food by travelling on movable cart or foot from one location to other.
• Small scale or cottage or such other industries relating to food business or tiny food businesses with an annual turnover not exceeding Rs 12 lakhs and whose:

  • Production capacity of food (other than milk and milk products and meat and meat products) does not exceed 100 kg/ltr per day or
  • Procurement or handling and collection of milk is up to 500 litres of milk per day or
  • Slaughtering capacity is 2 large animals or 10 small animals or 50 poultry birds per day or less.

FSSAI State License
Any person or entity that does not classify as a petty food business operator is required to obtain a FSSAI license for operating a food business in India. Some of the types of entities that require FSSAI state license are:

  • All grains, cereals, pulses milling units without any limit on production capacity
  • Club/Canteen
  • Caterers having turnover of upto Rs.20 crores per year
  • Food product marketers with a turnover of upto Rs.20 crores per year
  • Food retailers with a turnover of upto Rs.20 crores per year
  • Food suppliers with a turnover of upto Rs.20 crores per year
  • Food product distributors with a turnover of upto Rs.20 crores per year
  • Food product wholesales with a turnover of upto Rs.30 crores per year

FSSAI Central License
Large food manufacturers / processors / transporters and importers of food products require central FSSAI license. Some of the types of entities that require FSSAI central license are:

  • Five star hotels
  • Restaurants with a turnover of more than Rs.20 crores per year
  • Caterers with a turnover of more than Rs.20 crores per year
  • Selling food products through e-commerce
  • Registered office of food business operators having operations in two or more state
  • Food business activity in premises belonging to Central Government Agencies
  • Departmental Canteens at the premises belonging to Central Government Institutions
  • Food business activity in Airport or Seaport
  • Food business activity in Railway Stations
  • Food product marketers with turnover of more than Rs.20 crores per year
  • Food product retailers with turnover of more than Rs.20 crores per year
  • Food product suppliers with turnover of more than Rs.20 crores per year
  • Food product distributors with turnover of more than Rs.20 crores per year
  • Food product wholesalers with turnover of more than Rs.30 crores per year
  • Proprietary or novel food manufacturers

Benefit Of FSSAI

  1. Consumer Awareness:
    Today consumers are a lot more aware of the standard of food that they eat. People not only want to know whether what they are consuming is safe but also if the food is of the specific quality. FSSAI license provides you with an extra advantage as it increases consumer’s confidence in your product
  2. FSSAI Logo:
    Once you have the license, you can use the FSSAI logo in your menu cards, pamphlets, social media, etc in order to publicize your food’s superior quality over others. This, gives you an edge over the many food operators who are not having the food license. All the packaged food are required to have an FSSAI number. The logo is seen as a mark of validity and assurance by the consumers. It helps you in developing a brand name.
  3. Food Quality:
    According to a report there are more than 5 crore food businesses in the country while only 33 lakhs of them are registered with FSSAI. The importance of the quality standard is ever growing and it is beneficial in the short as well as in the long run for your business in order to have an FSSAI license.
  1. Business Expansion: FSSAI License can help you in expanding the business, establishing your reputation and also it gives you the to grow your business in a new direction with ease.
  2. Legal Benefit:
    Generally,people identify getting an FSSAI license as an expensive and time-consuming process, thus they try to avoid getting the license. But, in reality, the process is not so cumbersome and ValueTax can help you get the license with ease. The actual cost which is required in order to achieve the license is less than what you will have to pay for it as the penalties if you are caught. It is thus advisable for any businessman to firstly get the license before you even officially open your business.

Get your FSSAI registration certificatetoday with Valuetax.

MSME (Micro Small and Medium Enterprises)

MSME (Micro Small and Medium Enterprises)

Shruti Gupta

Small Scale Industry Registration is a registration from the Ministry of Micro, Small and Medium Enterprises. When a business registers as SSI it becomes eligible to avail Government schemes and subsidies that are exclusive for small businesses.
New Udyog Aadhar replaces SSI / MSME Registration
In order to make the process of registration even more straight forward, a new act called the Udyog Aadhar was created in 2015.Udyog Aadhar has completely replaced MSME/SSI registration.
What are Micro, Small and Medium Enterprise?
The existing MSME classification was based on the criteria of investment in plant and machinery or equipment, further classifying it between manufacturing and service sector. So, to avail the MSME benefits and loans, the enterprise had to limit their investment to a lower limit, as mentioned below:

SectorCriteriaMicro EnterpriseSmall EnterpriseMedium Enterprise
Manufacturing
Sector		Investment< Rs.25 lakh< Rs.5 crore< Rs.10 crore
Service
Sector Investment		Investment< Rs.10 lakh< Rs.2 crore< Rs.5 crore

New MSME Definition:
Now, under the Aatmanirbhar Bharat Abhiyan (ABA ), the government has revised the definition of MSME. The distinction between the manufacturing and services enterprises has been removed by making the investment amount and annual turnover similar for enterprises engaged in both the sectors.

Sector/Enterprise Type Micro EnterpriseSmall EnterpriseMedium Enterprise
Manufacturing Sector, Services Sector or BothInvestment less than Rs. 1 crore &
Turnover less than Rs. 5 crore		Investment less than Rs. 10 crore &
Turnover up to Rs. 50 crore		Investment less than Rs. 50 crore &
Turnover up to Rs. 250 crore

BENEFIT OF MSME REGISTRATION:
Key benefits of New MSME Scheme introduced under Atmanirbhar Bharat Abhiyan or Self-reliant India Scheme 2020 by Government of India are as under:

  • Collateral Free Loans to MSMEs
  • MSME Loans worth of Rs. 3 lakh crore
  • Moratorium period offered is 12 months
  • Manufacturing and Service MSMEs shall be considered as same entities
  • Repayment Tenure of 48 months
  • 100% Credit Guarantee
  • To benefit approx. 45 lakh units
  • For loans up to Rs. 3 lakh, relief of 2% in interest rate
  • Rs. 20,000 crore loan option for MSMEs
  • Loans of amount Rs. 10,000 offered to pedestrian business owners
  • 50 lakh shopkeepers to benefit, running pedestrian shops

Documents Required for MSME Registration

  • Partnership Deed/ MoA and AoA, if any
  • Identity Proof: Passport, driving license, PAN card, Voter’s identity card
  • Residence Proof: Passport, lease agreement, trade license, telephone and electricity bills, ration card and sales tax certificate
  • Age Proof: Passport, Voter’s identity card, Photo PAN card

Get your MSME Registration Certificate today with Valuetax.