I'll give this a go. Unfortunately, AskHistorians lacks Indian historians, so if I don't answer this it's likely no one will, even though this is in no way my area of expertise. But I did do some reading on it in my last year of undergrad. But I should note that the Mughal Empire was huge and complex, and I just know enough to know that I know very little! The best I can do is give a cursory summary of its decline and recommend some sources.

Accounts of Mughal decline tend to start with Aurangzeb, who came to power in 1658 after defeating his brothers in a succession war. The empire he inherited was vast and flourishing, but also religiously, ethnically, and culturally diverse. The Mughal dynasty was Muslim, but previous emperors had gone to some lengths to incorporate and tolerate all its different subjects.

Aurangzeb, on the other hand, was devout to the point of intolerance and expansionist. Although he left the empire larger than he inherited it, he also left it weaker and more divided. His wars left a crushing tax burden that ruthlessly fell upon the empire's subjects. Aurangzeb persecuted Hindus and Sikh, which hampered the empire's civil service and sparked open revolt in an empire where many provinces were rich enough to be their own kingdoms. When he died in 1707 the Mughal edifice was crumbling fast. His successors ruled over an increasingly vestigial empire, and princes like the Marathas quickly came to preponderance. It should be noted, however, that the Mughal decline that was obvious in the subcontinent was not apparent to Europeans until the mid-18th century, who still referred with awe to "the Grand Mogul" (here I am on firmer ground).

Sources: John F. Richard, The Mughal Empire (Cambridge, 1995)

Hermann Kulke, A History of India (Routledge, 1986)