Zahida Akhtar was arrested on Friday in southern town of Anantnag and also is charged with instigating protests, said police officer Ramesh Jalla.
A court freed Akhtar on bail later Saturday pending trial, Jalla said.
In 2010, Kashmir witnessed some of the largest protests against Indian rule that left at least 112 people dead in firing by government forces.
Police say more than 3,000 cases involving thousands of Kashmiri people are being investigated for their participation in the protests. Some of them face severe charges ranging from unlawful assembly to attempt to murder.
Adil Ahmed Dar, Akhtar's brother, denied the police claim and said his sister was hit by a police bullet and had to drop out of school.
"I took her to the police station after police came to my shop and said she was wanted for an inquiry. When we reached there, they simply arrested her," Dar said.
"This is even worse than jungle rule. First they (government forces) almost made her an invalid. Now, after two years they've arrested her," he said.
Kashmir is divided between India and Pakistan, and it is claimed by both countries.
Since 1989, an armed uprising and ensuing crackdown by Indian forces have left
A separatist leader in the disputed region Saturday condemned the woman's arrest and said India has converted Kashmir into a "police state."
"On the other hand, they've not brought to book any police or soldier involved in 2010 killings," said Syed Ali Shah Geelani in a statement.