The health ministry said the ruling had been made "based on the proportion of people in quarantine who have acquired a Covid-19 infection in India".
Earlier this week, Australia banned all flights from India.
There are an estimated 9,000 Australians in India, 600 of whom are classed as vulnerable.
This will be the first time Australians have been criminalised for returning to their country, Australian media report.
One doctor told ABC that the government's move was disproportionate to the threat posed by those returning from India.