Campaigners welcomed the move and said it will help to prevent girls staying away from school during their periods.
India has scrapped a controversial tax on sanitary pads - a move hailed by campaigners who say it will help more girls to go to school during their periods and boost their job prospects.
Activists say removing the tax on pads tackles one of the biggest barriers to education for girls, who are often forced to stay at home due to a lack of access to clean hygiene products, while also facing stigma and a lack of toilets in schools.
Periods are among the leading factors for girls to drop out of school in a country where four out of five women and girls are estimated by campaigners to have no access to sanitary pads.
"I am sure all mothers and sisters will be very happy to hear that sanitary pads are now 100% exempt from tax," India's interim finance minister Piyush Goyal told a news conference in New Delhi.
Sanitary pads were taxed at 12% under India's Goods and Services Tax (GST) that was launched in July 2017. The decision triggered protests, petitions and court cases that questioned why the government taxed pads as a luxury rather than an essential item, such as condoms, which are tax-free.
Last year lawmaker Sushmita Dev launched a petition to demand a reduction or total removal of taxes on pads, citing that about 70% of women in India could not afford them. The online petition gained more than 400,000 signatures.
"This was a most-awaited and necessary step to help girls and women to stay in school, their jobs, to practise proper menstrual hygiene," said Surbhi Singh, founder of Sachhi Saheli, a charity that raises awareness on menstrual health.
"This will help them to grow, to show their true potential," she told the Thomson Reuters Foundation.
Indian girls and women face many challenges when they have their periods, especially in rural areas where a lack of awareness and the cost of pads mean many instead use unsanitary cloth or rags, increasing the risk of infections and disease.
Bollywood's first film on menstrual hygiene - Padman, starring Akshay Kumar, one of Hindi cinema's most popular action heroes - triggered debate over the taboo subject of menstrual hygiene in India after its release earlier this year.
Kumar is at the forefront of a campaign by Niine Movement, an initiative promoting menstrual hygiene, to help increase the number of women using pads.
Amar Tulsiyan, founder of Niine Movement, called Saturday's decision "a big win for everyone" in India where, he said, 82% women and girls have no access to sanitary pads.
"The tax exemption is a massive boost," he said.
More than a third of girls in South Asia miss school during their periods, as they lack access to toilets or pads, and many receive no education about menstruation before reaching puberty, according to a recent report by charity WaterAid and UNICEF.