India's upper house of Parliament has passed a bill to rationalize the country's convoluted tax structure, creating a "one nation, one tax" market to boost its economy.

India's main opposition Congress party and other groups voted for the bill on Wednesday after working out compromises with Prime Minister Narendra Modi's government.

India's 29 states currently levy their own sales taxes and protect local producers from competition, dividing the Indian market. The tax reform is expected to provide a uniform tax structure across the country, India's Finance Minister Arun Jaitley said.

The government expects the reform to add up to 1.5 percent to its annual economic growth of 7.5 percent.

The bill now returns to the lower house to incorporate the upper house amendments approved Wednesday.