The broader NSE Nifty cracked below the 10,800-mark by shedding 256.30 points, or 2.33%, to 10,760.60 at close.
While the long-term capital gains (LTCG) tax has come with a grandfathering clause, investor sentiment has taken a hit as experts believe it is a retrograde step, and malign India's image worldover making it one of the most-taxed countries.
In the meantime, the ratings agency Fitch on Friday said high debt burden of the government constrains India's rating upgrade. The impact of poor Union Budget followed by weak Q3 results led to the fall in the markets.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) was also trading 46.25 points or 0.42 per cent higher at 11,073.95 points.
Finance Minister Arun Jaitley also projected a fiscal deficit of 3.5 % of GDP for the current fiscal against the earlier target of 3.2 %. The Nifty small and midcap index slumped 6.06 per cent and 4.34 per cent, respectively.
"It is easy to say hey, you made so much money, paying 10 per cent tax is not a big deal, but an equity investor operates around huge risks".
According to provisional figures, foreign portfolio investors (FPIs) sold shares worth Rs 105.56 crore on net basis while domestic institutional investors (DIIs) also offloaded equities to the tune of Rs 281.65 crore on Wednesday.
Bucking the trend, Kotak Mahindra Bank, RIL, HDFC Ltd, IndusInd Bank, Tata Motors, Yes Bank, Asian Paints and ICICI Bank finished with gains.
Heavy selling pressure in banking, capital goods, auto, consumer durables, and oil and gas stocks added to the downward trajectory of the indices.
All the sectoral indices on BSE ended in the red led by realty and infrastructure. The 30-stock index was trading 0.55% higher at 36,163.93 around 10:30 am.