At one point, the index was down over 450 points, tracking massive sell-off in other Asian markets after weak factory output data stoked fears about China's slowing economy.
US markets overnight ended in deep red too.
Besides, escalating tension between South Korea and North Korea and weakness in emerging market currencies too stifled new bets in the domestic market.
Consequently, the wider NSE Nifty crashed below the 8,300- mark by tumbling 72.80 points or 0.87 per cent to 8,299.95.
Foreign investors also didn't help as they pulled out Rs 1,007.26 crore from local markets yesterday.
Meanwhile, the rupee depreciated to a two-year low of 65.91 (intra-day) against the dollar.
The BSE Sensex after resuming lower at 27,440.10, continued to slide and touched day's low of 27,131.44.
However, it recouped nearly half of early losses in late afternoon on emergence of buying after A P Shah panel on MAT on FIIs recommended giving relief to foreign investors from levy of tax for the period prior to April 1, 2015.
Finally, the index settled 241.75 points or 0.88 per cent down at 27,366.07, its lowest closing since June 19.
Shares of realty, auto, capital goods, banking, power, oil&gas and metal were among the major laggards of the day.
On a weekly basis, the Sensex lost 701.24 points and the NSE Nifty plunged by 218.60 points.
Overseas, Key indices in Japan, China, Hong Kong and Taiwan were off between 1.53 per cent and 4.27 per cent.
Meanwhile, a survey showed that China's factory sector shrank at its fastest rate in more than six years in August.
US stocks suffered their worst sell-off in 2015 by falling 2.06 per cent in yesterday's trade as markets were buffeted by worries about a slowdown in global growth.