The rupee, which rose as much as 0.9% to 70.68 against the dollar after the announcement, pared some gains to trade at 71.05 by 1015 GMT.
have been asking for a big fiscal stimulus and the government has delivered," said Rusmik Oza, head of fundamental research at Kotak Securities in Mumbai.
Corporate earnings may see an almost 12% jump in the next quarter for full tax paying companies due to the cut, and the markets
can go up nearly 10%, Oza said, adding that foreign investors would cheer these measures.
The tax break is the latest in a raft of measures from the government to lift the economy after growth hit a six-year low in the April-June period, mainly dragged by a slump in private investment.
"The measures announced by the finance minister this morning can be described as a 'New Deal' for the Indian economy," said VK Vijayakumar, chief investment strategist at Geojit Financial Services. "The psychological stimulus from this ... will be higher than the fiscal stimulus."
Economists believe that the cuts would make India competitive for investment, as it brings corporate tax rates on par with other Asian economies.
Reserve Bank of India Governor Shaktikanta Das said the moves augur "extremely well" for the economy.
However, Sitharaman said total taxation revenue loss due to the cuts would be about $20.5 billion, raising concerns that the government may not be able to meet its fiscal deficit target for 2019-20 at a time when tax revenue collections are already weak.
Speculation that the government may have to borrow more to meet its expenditure needs for the year saw the benchmark 10-year bond yield spike to a 2-1/2-month high of 6.87%, before trimming some gains to trade at 6.8%.
Governments and central banks around the world have been loosening monetary and fiscal policies to revive economic growth, hurt mainly by the ongoing US-China trade war and weak consumer demand.
Stocks of automakers were among the top gainers on the local indexes. The Nifty Auto index jumped 9.9%, with Eicher Motors Ltd and Hero MotoCorp Ltd climbing over 13% each.
Top lenders ICICI Bank Ltd and HDFC Bank Ltd soared 8% and 9%, respectively, sending the Nifty Bank index up 8.3%.
IT firms dipped as the rupee firmed, with Tata Consultancy Services Ltd slipping 1.7%.