The S&P BSE Sensex was trading over 1,000 points or 2.69 percent at 39,038.36, while the broader Nifty50 was up 2.76 percent or 311 points at 11,585.10.
The indices zoomed for the second straight session after Finance Minister Nirmala Sitharaman cut the effective corporate tax rate to around 25 percent from 30 percent on Friday and scrapped the minimum alternative tax for domestic companies.
"There will be long-term benefits since the tax rates have come down ... there is no doubt about it," said Madhumita Ghosh, Dean at Tasmac Global Solutions in Mumbai. "The move will also stimulate FPI inflows."
India's fear gauge, the Nifty volatility index surged as much as 14.55 per cent. Most sectors extended Friday's rally by moving sharping higher in early trade.
The Nifty fast-moving consumer goods (FMCG) index, which jumped up to 6.63 per cent, marked its best session in more than eight years. Sector heavyweights Britannia Industries and ITC Ltd rose between 8 per cent and 10 per cent in early trading.
The Nifty auto index rose 4.38 per cent as investors welcomed the stimulus boost to an ailing industry, which has seen massive inventory pile-ups and job cuts.
Financials were among the top gainers, with the Nifty banking index, which tracks both state-owned and private-sector lenders, rising up to 5.5 per cent.
IT stocks, however, traded in the red with Tata Consultancy Services falling as much as 3.17 per cent, while Infosys Ltd was down 3.7 per cent.
The index was in the red on Monday after a brief rally last week even as the rupee traded strengthened by as much as 0.9 per cent in the previous session.
(With Reuters inputs)