Several protesters, some dressed in Buddhist robes, were arrested after a violent scuffle with embassy guards and police in New Delhi's diplomatic enclave on Monday. Dozens outside the embassy screamed "Free Tibet".
China says the link will promote development in Tibet, but Tibetan activists say it will only increase Chinese migration into the region, diluting Tibetan culture.
A limited passenger service is due to start on Saturday.
The Tibetan Youth Congress, which organised the protest, said in a statement: "The Gormo-Lhasa railway link is a death knell for an independent Tibetan culture, religion and race."
They said that building the railway was an act of "demographic aggression", and that Beijing planned to use it to relocate 20 million Chinese in Tibet over the coming decade.
The Chinese embassy refused to comment on the incident.
An estimated 80,000 Tibetan exiles have been living in India since the Dalai Lama, their spiritual and temporal leader, fled from Tibet in 1959 after an abortive uprising against Chinese rule.