The legislation envisages that people living along the International Border (IB) in J and K will get benefits of reservation in direct recruitment, promotion and admission in professional courses on par with those living along the Actual Line of Control (ALoC).
The Bill was the first to be piloted by Shah as Home Minister.
Replying to the debate on the statutory resolution seeking extension of President's Rule in the state, and the amendment bill, Shah asserted that the Modi government has 'zero tolerance' policy towards terrorism and its ideology is to ensure protection of borders and make the country free of terrorism.
Launching a blistering attack on Nehru and the Congress in his maiden speech as Home Minister in the lower house, Shah alleged that the policies of previous Congress governments widened the wedge between the people of the state and the country.
"Today one-third of Kashmir is not with us. Who announced ceasefire when Pakistan encroached in Kashmir after independence and occupied one-third of its territory?
"Jawaharlal Nehru announced ceasefire and Pakistan took away that part of Kashmir," he said alleging that Nehru did not take the then Home Minister and Deputy Prime Minister Sardar Patel into confidence.
"If he would have taken Patel into confidence before announcing ceasefire, then Pakistan Occupied Kashmir (PoK) would not have formed and terrorism would not have existed in Kashmir," Shah said.
He said one-third of Indian territory is with Pakistan now.
The Congress members reacted sharply to this and Shah responded saying he would not take Nehru's name but referred to him only as the first prime minister.
The Home Minister said the present government adopted "zero tolerance" towards terrorism and people who try to divide the country have fear in their hearts, which will increase in the coming times.
"We are not members of the 'tukde tukde' gang. Those who want to break India should have fear in their hearts...they should be scared and their fear will increase further in the coming times," Shah asserted.
He said his government is making efforts to remove terrorism from its roots and restore democracy in the state.
Responding to a question, the Minister said assembly elections could not be held along with Lok Sabha elections in the state as large number of security personnel were required for the purpose.
Continuing his tirade against the opposition party, he said so far Article 356 (President's Rule) was imposed 132 times all over the country, of which the Congress used it 93 times to dismiss state governments.
"Some in the opposition said that through President Rule efforts are being made to throttle democracy. 132 times Article 356 has been imposed in the country, of which 93 times was by Congress. We have never used Article 356 for political gains," he said.
Shah took on the Congress after its member Manish Tewari alleged that the sense of alienation among the people of J and K has increased under the BJP government.
Participating in the debate, Tewari said he and his party were not opposed to the Centre's fight against terrorism but added, "Fight against terrorism cannot be won when people are not with you."
It is "not in the interest of people in the state and the country" that governor's rule should continue in the state, he said, adding the Centre should not take such steps which alienate the people of the state.
The biggest mistake of the Modi government was that sense of alienation has increased among people in the state. "Government needs to walk two extra miles to integrate them into the national stream."
Taking on the BJP, Tewari said if the party continues to look at Jammu and Kashmir with "its ideological blinkers," the problem of the state cannot be resolved.
The Home Minister also said the government withdrew security of 919 people in the state as there was no security threat for them.
"Earlier people who used to speak against the country were given security cover," he said, adding whereas those who spoke for India were actually killed in the state.
Invoking Vajpayee's philosphy of 'Insaaniyat, Jamhuriyat and Kashmiriat', Shah, who is also the BJP chief, said during the Congress' rule at the Centre, the rights of common man were snatched.
"They could not even go for voting (in the state) as their democratic right. It is for the first time that rights were being given to common people and 3 families are taking a backseat," he said while also referring to the arrest of Sheikh Abdullah by the then Congress government.
Shah said this sowed "seed of distrust among people of Jammu and Kashmir that was planted by Congress".
Suggesting that only a strong "medicine" could stop terrorism, Shah said the government at the same time does not want to create an atmosphere of fear.
"We are taking steps to remove the fear which you (Congress) have put in the minds of people," he said, while mentioning various developmental initiatives carried out by the Modi-led government in the last five years.