The BSE benchmark index Sensex recovered from early lows to close higher by 82 points after the Government deferred implementation of the General Anti-Avoidance Rules (GAAR) by one year.
The 30-share barometer index plunged 317 points to intra-day low of 16,513.77 on fears that the proposed provisions could lead to heavy tax burden for foreign investors investing through tax-friendly places like Mauritius.
Buying emerged in the last 30 minutes of trading soon after the Finance Minister, Mr Pranab Mukherjee, announced a slew of measures to provide relief to the equity markets and postponed the implementation of GAAR by one year.
The Sensex bounced back to end up by 81.63 points or 0.48 per cent at 16,912.71.
The broad-based National Stock Exchange index Nifty also bounced back from four-month low levels to close higher by 27.30 points or 0.54 per cent to 5,114.15.
The rally was headed by capital goods, power, metal and consumer durables stocks, even as Reliance Industries and Infosys closed lower.
Significant gains in Larsen & Toubro, Bharat Heavy Electricals Ltd, State Bank of India, Maruti Suzuki, Bajaj Auto, DLF, ICICI Bank, Jindal Steel, NTPC, Tata Motors and Tata Steel helped Sensex settle in the positive zone.
Bucking the trend, oil major Reliance Industries fell 1.53 per cent to Rs 715.30 and Infosys shed 0.43 per cent to Rs 2,430.60.