The Lok Sabha on Wednesday passed a bill that seeks to transform the country into a common market, harmonising state and central levies into a national goods and services tax which is expected to boost manufacturing.
The Rajya Sabha will now have to pass the constitution amendment bill, after which more than a half of India's 29 states must approve it before the federal and state governments get equal powers to tax goods and services.
"The whole country, which is one-sixth of world's population, would become a single market and therefore it would give a necessary fillip as far as trade is concerned," Finance Minister Arun Jaitley told lawmakers.
Mr Jaitley has called the goods and services tax (GST) the biggest reform since independence in 1947 that could add as much as 2 percentage points to the growth of Asia's third-largest economy.
The idea of a GST was mooted 12 years ago, but it has been an arduous process to get states agree on the tax, which would curb their fiscal powers. There is still a lot of work to be done before Mr Jaitley's self-imposed deadline to roll it out next year.
For example, he needs to win over the opposition Congress party to ensure the bill's passage in the upper house.
While Congress supports the measure, it boycotted the vote in the lower house on Wednesday, demanding the bill be first reviewed by a parliamentary panel.
A council of federal and state finance ministers still has to agree on a GST rate that would not be too low to adversely impact revenues and not too high to inflate costs of manufactured products and services.
A government think-tank proposed the GST rate be set at 27 percent, well above the global average of 16.4 percent for similar taxes. But some states are asking for an even higher rate.
On Wednesday, Mr Jaitley told lawmakers that the proposed rate was "too high" and needed to be "much more diluted".