Previously, gay s*x had been punishable by up to 10 years in prison under Section 377 of the Indian constitution, which outlawed sexual activities "against the order of nature" and was interpreted by police and courts as referring to homosexuality.
LGBT activists said the law, though rarely enforced, was the foundation for systemic discrimination and harassment of gay Indians.
Reading out the first judgement on the case in the Supreme Court shortly before noon on Thursday, the Chief Justice of India Dipak Misra said interpreting Section 377 to criminalise gay s*x was "irrational and indefensible".
There were scenes of celebration not just outside the court in Delhi but also shown in videos from across India, as Mr Misra observed that members of the LGBT community "must have the same rights as any other citizen".
"Any consensual sexual relationship between two consenting adults - homosexuals, heterosexuals or lesbians - cannot be said to be unconstitutional," Mr Misra said.
The Indian government had left Thursday's decision up to the Supreme Court, saying it would neither fight nor directly support the five lead petitioners asking for Section 377 to be reconsidered.
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