Zahira Sheikh hit the headlines after accusing 17 men of carrying out the attack on the family's bakery in Vadodara town in the western Gujarat state in 2002.
Despite seeing her father and 13 others burned alive, she told journalists on Wednesday that a police statement she had made at the time was to be withdrawn.
But Sheikh's sister-in-law, Yasmin, has claimed that Zahira withdrew her statement following threats from the state's ruling Hindu nationalist party and in return for money.
The ruling Bharatiya Janata Party has denied accusations that it fanned the Hindu-Muslim riots that raged in 2002, killing more than 1000 people.
The 17 men in custody and four others who fled were acquitted by a lower court in Gujarat last year. They are being retried in Bombay following an appeal by human rights activists in India's Supreme Court.
They face charges of murder, rioting with deadly weapons, unlawful assembly and property damage, and could face the death penalty if convicted.
Sheikh changed her statement two weeks ago. She told reporters that a human rights activist had threatened to kill her if she didn't testify against the alleged rioters in the new trial and had forced her to file false police statements.
The activist, Teesta Setalvad, denied the accusation. On Wednesday, Yasmin Sheikh told Judge Abhay Thipsay that Zahira "had originally told the police the truth but then she was bribed and changed her statement."
"They came armed with swords, iron rods and flaming torches and shouted slogans ... they also threatened to rape us"
Victim of 2002 anti-Muslim riots
Yasmin has been estranged from the Sheikh family since last year, when her husband, Nafitullah, married again.
Harshad Ponda, the lawyer representing Sheikh's family, said he could not comment on the bribery allegation since the matter was before a court.
During her cross-examination on Tuesday, Yasmin Sheikh identified 11 of the alleged attackers and named 10 of them.
"They came armed with swords, iron rods and flaming torches and shouted slogans," she told the judge. "They also threatened to rape us. My daughter was also injured by a stone."
The Bombay trial, which began on 22 September, is viewed as a vital test of the government's ability to bring to justice those responsible for the riots.
The riots were sparked by an attack on a train car in which 60 Hindus returning from a religious pilgrimage were burned to death.
The fire was blamed on a Muslim mob and Hindus retaliated against Muslims across Gujarat with the encouragement of the BJP state government.