The benchmark BSE Sensex tumbled over 400 points and the NSE Nifty fell below 7,700-mark in early trade as investors preferred to book profits after two-session rally on worries over likely delay in Goods and Services Tax.
Capital outflows by foreign funds and a weak trend in other Asian markets also weighed.
The 30-share barometer tanked 402.98 points or 1.57 per cent to 25,316.60. The index had rallied by 825.77 points in the previous two sessions.
All the sectoral indices, led by realty, metal, consumer durables and power were trading in the negative zone.
The NSE index Nifty crashed below the crucial 7,700-mark by plunging 130.55 points or 1.67 per cent to 7,688.05.
Brokers said besides profit-booking by speculators and sustained capital outflows by foreign funds, likely delay in the implementation of key GST after the government yesterday gave up plans to reconvene a session of Parliament dampened sentiments.
The government had kept the Monsoon Session alive in hopes of building a consensus on GST, which has been billed as one of the biggest economic reform.
Among other Asian markets, Japan's Nikkei was trading 3 per cent down, Hong Kong's Hang Seng shed 2.36 per cent and Shanghai Composite index was down 0.97 per cent in early trade today.
The US Dow Jones Industrial Average also ended 1.45 per cent lower in yesterday's trade.