"The cabinet has approved amending the law so that India is not deprived of the tournament," Chidambaram told reporters on Thursday after a cabinet meeting chaired by Prime Minister Manmohan Singh.
According to current regulations, income tax is imposed on all earnings, including gate receipts and sponsorships, for international sporting events held in the country.
The International Cricket Council (ICC) had said in March that the biennial Champions Trophy, the second biggest event after the World Cup, could be taken away from India and handed to Pakistan if tax exemption was not granted.
Indian cricket officials, led by former ICC chief Jagmohan Dalmiyam, met Chidambaram and Singh earlier this month to request a waiver for the tournament which raises funds for the ICC's development program.
Chidambaram said in future tax exemption will also be granted to other sporting occasions "provided it was a truly multi-national event approved by an international body responsible for regulating the relevant sport."
The ICC had given India a June deadline to confirm the tax waiver for the Champions Trophy.
India were originally scheduled to host the tournament in 2004, but the event was shifted to England and India made provisional hosts for 2006 after the government dithered on the tax waiver.
India, with millions of cricket viewers, is the world's biggest market for the sport. At least four of the ICC's six global sponsors are India-specific.
India, which co-hosted two World Cups in 1987 and 1996, is also bidding to host the 2011 World Cup.