Police said they ended a nearly 12-hour stand-off in the early hours by storming the house where the suspect, identified as Saifullah, was holed up in northern Uttar Pradesh state.
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"We had received information that an IS-related group was being formed here and a suspect linked to it could be hiding here," Aseem Arun of India's anti-terror squad told reporters, referring to the Islamic State group.
"When we entered the room, he fired upon us and we also retaliated. About four to five bullets hit him and then Saifullah died," he said. Six other suspects have been arrested over the explosion on a train on Tuesday in which at least 10 people were injured.
Closed-circuit television footage from near the train explosion site in neighbouring Madhya Pradesh state helped police identify the suspects.
Police reportedly recovered eight pistols and more than 650 rounds of ammunition, explosives, gold and passports from the house, on the outskirts of state capital Lucknow.
Television footage showed police carrying a body wrapped in a white sheet from the house.
Rahul Srivastava, spokesperson for the director general of police in Uttar Pradesh, said they were investigating Saifullah's links to IS. "The level of his involvement with IS or the extent to which he was radicalised, is a matter of investigation," he said.
"Given his involvement in the train blast incident in MP (Madhya Pradesh), the material, including weapons and ammunition, recovered from him, him being part of a bigger group, and based on other inputs, he doesn't seem to be merely inspired by IS."
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India's leaders say the IS group does not have influence in the country of over 1.2 billion people, which has a large but traditionally moderate Muslim population.
There have been some reports of Indians going to fight for the group in Iraq and Syria, but the numbers are low relative to the size of the population.
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