The social drama, starring Swara Bhaskar, Ratna Pathak, Pankaj Tripathi and Ria, will hit theatres tomorrow.
"After watching the poignant story of a mother and her daughter, Delhi and UP state authorities praised the movie for being an entertainer and socially relevant to our time and unanimously decided to make the film tax free so that such heartwarming and inspiring stories can reach to maximum people," the makers said in a statement.
Uttar Pradesh Chief Minister Akhilesh Yadav made the announcement on Twitter.
Rai said he is grateful to Delhi and UP government for making Ashwiny Iyer Tiwari-directed "Nil Battey Sannata" tax free.
"It's a heartwarming story that promises to both entertain and educate. Hopefully, such encouraging support will inspire more filmmakers to come up with stories like 'Nil Battey Sannata'," Rai said in a statement.
Swara added, "I'm very grateful and excited with this news, that two state governments found out film worthy of being tax free on day one which is very rare adds a lot of credibility to our film.