After India's match, defending champions Germany thrashed South Korea 7-0, while Belgium were held to a 3-3 draw by Great Britain. India finished the standings in second place with seven points from five matches.
This will be India's first appearance in Champions Trophy summit clash in 36 years since the inception of the blue-riband six-nation tournament. The only other time when India won a medal was in 1982, when they earned a bronze. They will fight for the gold in the final against Australia on Friday.
India's two goals came from penalty corner shooter VR Raghunath and striker Mandeep Singh, but it was too late to cause any threat to Australia, who had gained a stranglehold through strikes from Trent Mitton, Aran Zalewski, Flynn Ogilvie and Tristian White.
Australia topped the league standings with 13 points from five matches.
It was in the second quarter, when the Indian defenders erred in conceding too much space in their territory that Australia mounted the pressure and succeeded in scoring twice through penalty corner conversions.
India did not have a single shot at the Australian goal in the first half and started their fightback too late to be able to change the result. At the start, the Indians were content on defending their own territory and did not move up until the seventh minute, when overlapping striker Surender Kumar sent a cross into the right from the right flank. The Australian defenders kept their composure and the ball was cleared by the goalkeeper without an Indian striker coming into the frame.
Australia's first penalty corner came in the 10th minute when Jeremy Hayward's shot was blocked by goalkeeper PR Sreejesh.
Indian strikers Talwinder Singh lost his way at the top of the rival circle when he was dispossessed by the challenge from three defenders in the 12th minute. The Indian strikers thereafter did not mount a decent raid in until they got the first penalty corner in the 42nd minute, while Australia strengthened their stranglehold on the match.
Plethora of penalty corners
Denied a goal in the first quarter, Australia exerted more pressure as they forced five penalty corners in the second quarter and scored twice. Matt Dawson's penalty corner in the 17th minute rebounded off the right post and goalkeeper Sreejesh made two fine saves off the next penalty corners before Australia opened the scoring with a conversion by Trent Mitton in the 20th minute.
Three minutes later the Indian goal fell again when Daniel Beale's shot got deflected off Harmanpreet Singh's stick over the goalkeeper's shoulder. Before Sreejesh could try to palm the ball away, Aran Zalewski eased the ball into the net. Australia were continuing to make life difficult for Indian defenders when Flynn Ogilvie made it 3-0 in the 35th minute.
Picking the cross from right in the circle, he had plenty of time and space to get into position for a goal-bearing shot and defeated the custodian with a shot that brushed his pads before landing in the far corner of the cage. The Indians pulled one goal back in a brief period during which they forced their two penalty corners in four minutes. Harmanpreet Singh's penalty corner flick in the 42nd minute lacked the force to get past the Australian defence, but VR Raghunath scored India's first goal with a low penalty corner shot that went into the boards to the left of the goalkeeper in the 45th minute.
But the Indian goal fell again within 30 seconds as Tristian White picked up the ball from the goalkeeper's pads to flick in and give Australia a 4-2 lead at the end of the third quarter.
Talwinder's reverse shot from the top of the circle opened up the space for Mandeep to deflect the ball in for India's second goal. India's strikers came alive late in the game, but had a five-minute period of domination when they had a few shots at the goal, but Australian defenders held their ground.
Belgium draw with Great Britain
The Indian team had left the ground after their match and followed the developments at the hotel, while the pendulum swung from one side to the other in a dramatic sequence.
India's tentative defence and wayward shooting had left them marginally short in the past, but luck smiled on India as Belgium squandered their chance of increasing the 3-1 lead even as Britain played without a goalkeeper for the last six minutes.
Then Belgium had two players sent off and were down to nine men, allowing Britain to score twice in the space of three minutes and drawing 3-3 parity with 75 seconds left.
Britain went all out looking for that one good shot to land on target and lift them into the final, but the Belgian defence hung on grimly.
Two shots from British strikers went wide of the target and India found themselves in the final.