The new corporate tax rate for domestic companies, excluding surcharges, makes India more competitive than neighboring Bangladesh and puts it nearly on par with Vietnam and Thailand, countries that have wooed businesses affected by the U.S.
This, she said, is being done to promote investment and growth.
Announcing the rate cuts following the GST Council meeting here, Finance Minister Nirmala Sitharaman said that hotels room with a tariff of Rs 7,500 crore would now attract 18 per cent GST from 28 per cent earlier.
For manufacturing companies incorporated after Oct 1, the corporate tax rate was cut from 25 per cent to 15 per cent.
The all-powerful GST Council on Friday more than doubled the tax on caffeinated beverages to 40 percent and slashed the rate on hotel room tariffs.
"It will help in reviving investment demand".
Modi is headed to the United States this weekend where he will showcase India as an attractive destination for investment at a rally organized by Indian-Americans which U.S. President Donald Trump is set to attend.
Although India and the USA have a strong business relationship, it was recently hit by some irritants.
But officials on both sides maintained the relationship is strong enough to weather these bumps. The issue of tariffs is expected to come up in talks.
With the announcement of these measures, a much-required intervention has been made by the finance minister for boosting economic activity and employment in India.
"The reduction in corporate taxes will bring long-term FDI (Foreign Direct Investment) into the country as India is now one of the lowest corporate tax countries in Asia and will help Mr Modi make a powerful pitch to long-term investors in the USA to set up industry under "Make in India", said Mr Rishi Sahai, managing director of Cogence Advisors, an investment bank.
India has been seeking to boost its tepid manufacturing sector through its "Make in India" campaign.
The country has relied on domestic consumption to fuel growth but spending has slowed sharply. This is the biggest announcement so far by the Modi 2.0 government to fight the slowdown, which dragged down the GDP growth to a six-year low of 5 percent in the April-June quarter of the current fiscal.
While the reduction brings India's corporate tax rate closer to peers throughout Asia and will support the business environment and competitiveness, a host of cyclical factors, including rural financial stress, weak corporate sentiment, and a slow flow of credit in the financial sector, remain headwinds to near-term growth.
Also, the super-rich tax will not to apply on capital gains arising from sale of any security including derivatives in hands of foreign portfolio investors (FPIs).
Indian newspapers hailed the tax cut.
Commenting on the decisions, Abhishek Jain of EY said the rate rationalisation for the hotel industry in general should bolster demand for this sector. The move has been dubbed as the biggest policy reform since 1991.
The government's latest measures appear to be created to push growth through an increase in investment rather than consumption.
The Government has also chose to expand the scope of CSR 2 percent spending.