At least 23 people were wounded in Saturday's attack, which took place near Doda's main bus station.
The rally was held to protest against the killings of 35 Hindu's in recent attacks in Kashmir.
Suspected Islamist rebels shot dead 22 Hindus in two villages in the mountains of Doda district on May 1 in one of the bloodiest attacks in the region for many years.
On the same day, nine bullet-riddled bodies of Hindus were found in the neighbouring district of Udhampur. Four more bodies had been found in the same area on April 30.
"The explosion was deafening and shook many nearby houses," said witness Mohammed Arif.
Relatives of those who died in those attacks were among those present at Saturday's rally, police said.
The rally had been organised by the local branch of the Hindu nationalist Bharatiya Janata Party.
The victims also included passengers waiting at the bus station, police said.
The wounded were being treated at a hospital in Doda, where Medical Superintendent Basir Ahmed said the condition of four was serious.
Violence has continued in Indian Kashmir despite slow moving peace negotiations between India and Pakistan.
Tens of thousands of people have died there since 1989, when a revolt began against Indian rule.