The BSE Sensex dropped over 500 points, or nearly 0.7 percent, to 77,070.72, while the NSE Nifty 50 slipped around 0.66 percent to 24,050.
Crude oil surge rattles markets
The latest sell-off comes after crude oil prices spiked following US President Donald Trump's announcement of a 20 percent charge on all cargo shipped through the Strait of Hormuz.
Trump said the levy would help cover the costs of securing the Strait of Hormuz, one of the world's busiest and most strategically important maritime trade routes for global oil shipments.
Geopolitical concerns hit investor sentiment
The jump in oil prices, coupled with heightened geopolitical uncertainty in the Middle East, dampened investor sentiment, triggering broad-based selling across sectors in the Indian equity market.
Higher crude prices are generally seen as negative for India, one of the world's largest oil importers, as they can widen the current account deficit, fuel inflationary pressures, and increase input costs for businesses.