Explanation: Goods and Services Tax (GST) is a comprehensive indirect tax levied in India on the supply of goods and services. It is designed to replace multiple indirect taxes with a single tax to simplify the tax structure and reduce the cascading effect of taxes. GST is divided into three main categories: CGST, SGST, and IGST.
1. **CGST (Central GST)**: This tax is levied on intra-state sales, i.e., sales that occur within the same state. The revenue from CGST is collected by the Central Government.
2. **SGST (State GST)**: This tax is also levied on intra-state sales, but the revenue is collected by the respective State Government. The rates for CGST and SGST are generally the same, and they are applied together on intra-state transactions.
3. **IGST (Integrated GST)**: This tax is applicable for interstate sales, i.e., sales that occur between different states. IGST is a combination of both CGST and SGST and is collected by the Central Government. The revenue from IGST is then distributed between the Central and State Governments based on the destination principle, meaning the state where the goods or services are consumed receives the SGST component.
In the context of the question, when a GST dealer in Kerala sells a product to a GST dealer or customer in Tamil Nadu, the transaction is considered an interstate sale. Therefore, the tax collected is IGST. This is because IGST is specifically designed to handle the complexities of interstate transactions, ensuring that the tax is collected and distributed appropriately between the Central and State Governments.
Understanding the distinction between CGST, SGST, and IGST is crucial for businesses operating in multiple states, as it affects their tax planning and compliance requirements. IGST simplifies the tax structure for interstate transactions by combining both central and state taxes into a single levy, making it easier for businesses to manage their tax obligations across different states.