The Nifty fell 190.40 points, or 1.73% at the day's low of 10,826.50 in mid-morning trade, its lowest intraday level since 19 January 2018.
The barometer 30-scrip Sensitive Index (Sensex) of the BSE, which opened at 35,707.60 points, traded at 35,673,39 points (09 18 AM) - down 233.27 points or 0.65 per cent - from its previous day's close.
The "falling points" effect was also felt on the Nifty which also fell down around 0.54% same time the BSE Sensex faced the jolt.
In a post-market conference, the government, however, clarified that all LTCG tax-related rules would apply to foreign funds also.
European shares were trading lower for the fifth day running as the USA government bond sell-off entered a second session on optimism over global growth and rising expectations of inflation. The government in budget projected a fiscal deficit of 3.5 per cent of GDP for current fiscal against the earlier target of 3.2 per cent which also accelerated pace of selling by participants. The Centre on Thursday introduced a long-term capital gains tax of 10 per cent on stock market gains exceeding Rs 1 lakh, resulting in volatility in forex market.
The BSE market breadth was bullish with 1,495 advances and 636 declines. "By removing exemption of long term capital gains on transfer of shares, this avenue may not be a preferable option any more". The BSE Mid-Cap index was down 2.66% while the BSE Small-Cap index was down 3.37%.
According to market observers, expectation of sops from the Union Budget, along with positive Asian markets and healthy buying in consumer durables, capital goods and banking stocks, lifted investors' risk-taking appetite.
All the sectoral indices ended in the red.
Global markets were also trading in the negative after most of the USA stock indices fell due to political crisis and growth concerns.