Kostak Rate and Subject to Sauda Explained

The two ways an IPO application is bought and sold before allotment: the flat Kostak price, the conditional subject-to-sauda deal, how each is settled, what can go wrong, and why neither is regulated.

Published 14 September 2026 · IPO Sahayak

Grey market premium prices the shares of an IPO before they list. Two other quotes price something different: the application itself. A Kostak deal and a subject-to-sauda deal are both ways of selling your IPO application to someone else before the allotment result is out. They are quoted next to GMP on most sites and are widely misread as the same thing. They are not, and the difference decides who carries the risk of a blank allotment.

What exactly is being sold

When you apply for an IPO, you hold something with an uncertain value: a chance of being allotted shares at the issue price. If the issue is oversubscribed in retail, that chance might be one in ten or one in fifty. If you are allotted, the shares may list at a premium. Both the chance and the premium have a market.

A dealer who buys your application is buying the outcome of that chance. You still apply in your own name, from your own demat and bank account, and the registrar still allots to you. The dealer has no legal claim on the shares. What exists is a private agreement that, on listing day, you will sell whatever you were allotted and pass the proceeds — or the difference between listing price and issue price — to the buyer, and that the buyer will pay you the agreed rate.

Kostak rate

A Kostak deal is a flat price for one application, paid whether or not the application is allotted. If the Kostak rate on an issue is ₹800 and you sell one retail application, you receive ₹800. Three outcomes follow:

• Not allotted. You keep the ₹800. The buyer gets nothing. This is the buyer's risk and the reason the rate is modest.
• Allotted, and the shares list at a gain. You sell on listing day and pass the profit to the buyer. You keep the ₹800. If the profit is ₹4,000, the buyer has made ₹3,200 on the deal.
• Allotted, and the shares list at a loss. In principle the buyer bears the loss and still owes you the ₹800. In practice this is where deals go wrong — see the section on settlement.

Because the buyer is paying for applications that will mostly receive no allotment, the Kostak rate is a fraction of the expected profit per lot. On a heavily oversubscribed issue where the expected profit on one lot is ₹5,000 and the allotment odds are one in twenty, a Kostak rate of a few hundred rupees is the arithmetic, not a bad offer.

Subject to sauda

“Sauda” is simply the deal. A subject-to-sauda price is conditional: the deal exists only if your application is allotted. If you get no shares, nothing was bought and nothing is owed either way.

Because the buyer is no longer paying for blanks, the rate per application is much higher than a Kostak rate on the same issue — typically close to the expected profit on one lot, less the dealer's margin. If the expected profit per lot is ₹5,000, a subject-to-sauda rate of ₹3,500–4,000 would not be unusual.

The trade-off from your side is straightforward. Kostak gives you a small certain amount and transfers all the uncertainty to the buyer. Subject to sauda gives you a larger amount only in the scenario where you would have made money anyway, and nothing in the scenario where you would have made nothing anyway.

How settlement works, and where it fails

There is no clearing house. Settlement is a cash transfer between two parties after listing, based on the shares actually allotted and the price they were sold at. The usual sequence:

1. The deal is agreed during the subscription window, usually through a broker or dealer who acts as go-between and takes a cut.
2. Allotment is published. Under a subject-to-sauda deal, applications that received nothing drop out here.
3. On listing day the seller sells the allotted shares — often at a price the buyer specifies — and the difference between sale proceeds and issue price is passed to the buyer, net of the agreed rate.

The failure points are exactly where you would expect. A seller who is allotted and sees the shares list far above the expected price may decide not to honour the deal. A buyer facing a listing loss may not pay. The go-between dealer's reputation is the only enforcement mechanism, and it works only within the network of people who deal repeatedly. A retail investor doing this once has no leverage at all.

Reading the quotes on a GMP page

When a site lists GMP, Kostak and subject-to-sauda side by side, they are pricing three different things:

• GMP — per share, the premium over issue price at which the shares are quoted. Multiply by lot size for the expected profit per lot.
• Kostak — per application, unconditional. Always well below the expected profit per lot, because most applications on a hot issue are not allotted.
• Subject to sauda — per application, conditional on allotment. Close to the expected profit per lot, less a margin.

The gap between the Kostak rate and the subject-to-sauda rate is a rough reading of how oversubscribed dealers expect the retail book to be. A wide gap means they expect most applications to come back empty. Both quotes are collected the same informal way as GMP itself, so everything in how GMP is calculated about stale, copied and rounded figures applies here too.

The tax position

Whatever private arrangement exists, the shares are allotted to you, sold from your demat account, and the capital gain is yours in the eyes of the tax department. A payment you then make to a buyer under a grey market deal is not a recognised deduction. If you sell allotted shares on listing day, the gain is taxed as a short-term capital gain on listed equity in your hands — see tax on IPO listing gains. Money received under a Kostak deal is income too, and there is no clean head to report it under.

Whether any of this makes sense for a retail applicant

For most people applying for one or two lots, the answer is no. The certain amount under a Kostak deal is small; the larger amount under subject to sauda is only paid in the case where you would have profited anyway; and in both cases you are relying on a stranger to pay up after listing with no recourse if they do not. The market exists because of professional participants who apply through many accounts and trade the odds at scale. It was not built for someone with a single application, and it does not price their risk well.

Common questions