Perhaps the most important idea developed in the Upanishads is the concept of karma; every other aspect of Indian life, including social organization, is derived from this concept. Karma means "action," and operates as a causal explanation for everything that happens, particularly to human beings. All one's actions determine one's future actions; if one behaves evilly, one will become evil; if one behaves well, one will become good (Brihad-Aranyaka Upanishad 4.4.5). In other words, all actions you take are the results of actions you have taken in the past; all actions you take are also the causes of future actions.

When the idea of karma was combined with the idea of death after death, that is, reincarnation, to form the concept of samsara , or the cycle of birth and rebirth, it became a powerful tool for social organization. All actions in this life predetermine the nature of one's status when reborn; one's current life (and this includes moral disposition) has been predetermined by the sum total of all the actions taken in previous lives. In the social order, karma produces the cuatorvarnas, or "four colors" or "castes" (cuator=four [Spanish: cuatros, Latin: quattuor]; varnas=color [German: Farben] ) which form the substance and hierarchy of society. This social order reflects the rigorous set of consequences that accrue to individuals from life to life. A well-lived life guarantees rebirth into a higher social order and a basely lived life ensures rebirth into lower social orders; the social order, then, reflects Rita, or the moral order of the universe. Since one's place in the hierarchy is predetermined by previous actions, one's duty (dharma) consists in rigorously performing the functions of the life one is born into.

The four varnas form a hierarchy, with the best lives at the top, and the worst at the bottom. At the top are the Brahmins, or priests, who are the most powerful humans in existence, for with their prayers, spells, incantations, and rituals, they can force to gods to do whatever they please. The second varna is the Kshatriya, the warriors, kings, princes, and leaders. In third position are the Vaishya, or commoners, which includes merchants, farmers, and laborers. At the bottom are the Shudras, or servants. Not included in the varnas are the outcastes, the Untouchables, who are considered completely outside human society. These four varnas are further divided into occupations, jati ; one is not only born into a particular caste, but one is born into particular economic functions in that caste. Because this social hierarchy reflects the moral order of Rita , movement from one caste to another or one jati to another is out of the question. One's dharma is to perform the functions of one's varna and one's jati .

From these original four castes developed a complex social system that includes hundreds of castes today.