Australian Health Minister Greg Hunt said Australians defying the ban could be hit with a $66,600 fine or five years in prison, or both.
More than 9000 Australians in India are registered as wanting to return, including 650 people registered as vulnerable.
India has seen soaring infection rates, a rapidly rising death toll and the discovery of a new virus variant.
Such an announcement would mark the first time in history the Australian government has used emergency measures to prevent citizens from returning home.
Australian residents and citizens who have been in India within 14 days of the date they plan to return home will be banned from entering Australia as of Monday and those who disobey will face fines and jail, government officials said.
The revision of the pause on people arriving indirectly from India comes after Australia banned all direct flights from India earlier this week. "However, it is critical the integrity of the Australian public health and quarantine systems is protected and the number of COVID-19 cases in quarantine facilities is reduced to a manageable level", Hunt said.
Nor did leaders resolve differences over the use of hotel quarantine or setting up new national quarantine camps.
It's estimated there are more than 9,000 Australian citizens and residents in India at the moment. Almost 9,000 Australians are now stranded in India, according to ABC News.
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Asked if he agreed that AstraZeneca had not overpromised, Irish Health Minister Stephen Donnelly told national broadcaster RTE: 'Not for a second.
Hospitals are running low amid surging cases of Covid-19.
India's spiralling coronavirus crisis was today laid bare as images circulated on social media of the bodies of 22 coronavirus victims stuffed into an overloaded ambulance to be taken to the crematorium.
India recorded 360,960 new infections in the last 24 hours, the largest in a single day taking the country's tally of infections to almost 18 million.
"The risk assessment that informed the decision was based on the proportion of overseas travellers in quarantine in Australia who have acquired a COVID-19 infection in India", Mr Hunt said in a statement.
On Thursday 3,498 people died in India from Covid-19, at the end of a horror week where daily deaths averaged over 3,000.
On Friday, India reported 386,452 new Covid cases.
Prime Minister Scott Morrison said the suspension would remain in place until at least May 15 due to "clearly present" risks of travel from India, leaving thousands of Australians stranded.
The government is sending oxygen supplies, ventilators and personal protective equipment to India through the Department of Foreign Affairs.