The Washington Post reported that the bill would work in a variety of ways, for example it would protect a wedding photographer who refused to work a same-sex wedding. The right of business owners to refuse service has been central to the debate about religious freedom.
Supports believe the law will protect religious freedom in the state, but opponents said it will allow discrimination against LGBT people.
It is thought law makers on both sides of the debate cited the Bible to defend their positions.
The Indiana House approved the bill with a 63 to 31 vote.
Republican Gov. Mike Pence said he will sign the legislation. The state Senate's version of the bill will prevent government from 'substantially burdening a person's exercise of religion unless the government can prove it has a compelling interest and is doing so in the least restrictive means'.
Several other states have adopted laws related to freedom of faith.
Utah passed a bill to protect LGBT people from employment and housing decisions based on their sexual orientation, whilst also protecting religious institutions that oppose homosexuality.
But the bill did not address whether a business can deny services because of religious convictions.
