The Supreme Court also upheld a lower court ruling in May that dropped legal proceedings in three cases against the painter and cleared him of obscenity charges. Under Indian laws, obscenity is a criminal offence.
Husain welcomed the court's decision and said he was looking forward to returning home. "At last they have understood the dignity of Indian contemporary art," he was quoted as saying by the Times of India newspaper.
"This is not a victory for me only, but one for the Indian contemporary art movement," he added.
Last year, art auction house Christie's rejected demands by a group of expatriate Indians to withdraw the work of Mr Husain. The group had threatened to hold demonstrations unless the auction was dropped.
In 2006, Mr Husain had publicly apologised for the painting. He promised to withdraw the controversial painting from a charity auction, after Hindu nationalist groups accused him of hurting their religious sentiments.