The Buddha's relation with Hinduism is so close that it's easy to confuse Buddhism with Hinduism. The two religions have close connections, and yet they are distinct. This was because of Buddha's reform movements and his refining of Hindu beliefs. It would not be wrong to state, then, that Buddha founded a noble religion by distilling Hinduism, and offering a commonsense approach to self-betterment to which the people can relate easily.
Swami Kriyananda (J Donald Walters) in his book The Hindu Way of Awakening, perspicaciously notes how Westerners confuse between these two closely connected religions, and why people mistakenly consider Buddhism and not Hinduism as the religion of India:
"Hinduism is often omitted from rosters of the world's great religions. Everyone knows, of course, that Hinduism exists. Even so, it is confused in many people's minds with what they think of as Buddhism. For Buddhism fits into their concepts of what a religion ought to be...
"Even if the Westerner holds good intention towards India… he may see Hinduism as containing some of the worst examples of Paganism. Small wonder, then, that many people look upon Buddhism as the noblest representative of India's religion, and turn to it when wanting an Indian religion to place among the great religions of the world.
"While Buddhism is relatively simple, Hinduism is complex…Buddhism seems, to Westerners especially, to offer a benign and palatable form of the Indian religious experience. Most students of religion know that Buddha tried to reform some of the ancient practices; they think of him as having brought order and sophistication to primitive chaos. When they prepare lists of the great world religions they think of themselves as demonstrating respect for the religion of India by calling it Buddhism. Most of them are not conscious of their mistake."
Buddha, as we know, began his meditation as a Hindu. He was awakened with a new enlightenment only to denounce Hinduism and emerge as the founder of a new religion. Therefore, to understand Buddhism fully, one should not separate it from Hinduism; while at the same time view it separately from Hinduism. Buddha's way of life was "the golden mean" and a relief from the pagan stigmas and caste system prevalent in Hinduism.
The Hindu caste system defined a person's position in society as determined by their birth. Buddha condemned the Hindu caste system and said that it is karma or the good and bad actions of a person and not birth that should determine a person's caste. He introduced the idea of placing morality and equality on a higher place than genealogy of a person.
Jesus had the same relationship to Judaism as Buddha to Hinduism. Both Hinduism and Judaism are ethnic and non-missionary traditions, and are characterised by an element of segregation between the castes and races, unlike Buddhism and Christianity.
Swami Kriyananda compares Buddha's position relative to Hinduism with Martin Luther's to the Roman Catholic Church: "Both men were reformers, and the structure reformed by each was not supplanted by his teachings. The Catholic Church survives to this day, and has in many ways been strengthened by Luther's reforms. Hinduism similarly was purified and strengthened by the teachings of Buddha, and was in no way replaced by them. Most Hindus today look upon Buddha as one of their own Avatars or Divine Incarnations."
Hindus believe that the purpose of the avatar of Buddha, like all divine avatars, was to re-establish dharma where "adharma" (irreligiousness) had become prevalent. Buddha is regarded by some sects of Hindus as an incarnation of Vishnu, or even as a Hindu. This is because Buddha's theistic beliefs are not contrary to Hinduism, but only a step ahead. This is also because the nature of Hinduism itself is such that all beliefs are recognized as being facets of the Ultimate Truth. It is interesting to note that the word "Nirvana" — used by Lord Buddha to describe the state of permanent bliss — is indeed a Vedic term.
The great unification of Buddhism and Hinduism is still prevalent in Nepal, the birthplace of Buddha. Ironically, Nepal is the world's only Hindu nation, where people don't consider the two religions distinct from each other.