The word Karma is found in Rigveda and significantly in Atharva Veda. Karma Theory is mentioned in Brihad Aranyaka Upanishad (4.4.6).
"Karma" literally means "deed", "work", or "action", nothing but the universal principle of cause and effect, action and reaction.
There are three types of karma namely, Sanchita Karma, Prarabdha Karma and Agami Karma and these are mentioned in Varaha Upanishad (1.12). For more details on Karma please read the article What is Karma?
What the Karma Theory says is if one drops the ego, the doership is not there and any deed done does not accrue any Karma. “I did it”, “I made this happen” kind of doership feeling is not there. All the actions get performed with a selfless service mentality. In case of actions performed due to some responsibility, they are executed with a sense of duty and without any egoistic feelings or selfish motives.
According to the Vedic literature, if one attains Self-Realisation and becomes successful in dropping the ego and being in Silent Awareness or abiding in the Self, the Atman, all the accumulated pile of Sanchita Karma gets burnt instantly (Mundaka Upanishad 2.2.8) and gains Moksha.
For the one who can successfully be in the Silent Awareness, the ego gets dropped. Hence there is no sense of doership and therefore such a person does not accrue any Agami Karma as every action is performed unselfishly.
For a person who is firmly established in Silent Awareness even though Prarabdha Karma is still present, such a person is never affected by it because, whether he is confronted with difficulties or with joy, both of them are seen with equanimity. Thus, the Karma Theory applies as long as we have the ego. If the ego is dropped then the effect of Karma ceases.
Finally, to conclude, the Karma Theory gives importance to morals, ethics and value-based living so that one can drop the ego and become successful in experiencing the Sentient Life Energy, Atman (Self) by being in Silent Awareness.
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