The players will be divided in three categories, with top rung players like Tendulkar and captain Sourav Ganguly getting annual salaries of six million rupees (approx 1,34,000 dollars), the second slab earning three million rupees (67,000 dollars) and the third 1.5 million rupees (33,500 dollars).
Besides the retainers, the players will also get match fees of around 2,00,000 rupees (4,500 dollars) for a Test and 1,60,000 rupees (3,500 dollars) for a One-day International. The reserves will, however, be given only 50 percent of the match fees.
The contracts, to be reviewed annually, will be formally announced by Board of Control for Cricket in India (BCCI) chief Jagmohan Dalmiya after a meeting of the Board in New Delhi on July 18 and 19.
BCCI secretary Karunakaran Nair on Monday said that the graded system of payments, which has been under consideration for the past two years, will be valid from the Asia Cup Limited Overs tournament to be played in Sri Lanka from July 16 to August 1.
Indian cricketers, who till now were paid only match fees ranging from 2,60,000 rupees for a Test and 2,25,000 rupees for a One-dayer, will join their counterparts from other Test-playing nations like Australia and South Africa who have similar contracts.
Who goes under which category - depending on their value to the Indian team - will be decided by a committee comprising the BCCI president, coach John Wright and chairman of selectors Syed Kirmani.
It is expected that senior players like Tendulkar, Ganguly, Rahul Dravid, Anil Kumble, Venkatsai Laxman and Virender Sehwag will be placed in category A.
The contracts will be offered only to those who have played a minumum of three Tests or 10 One-day Internationals. Those who do not have contracts will also be eligible for international cricket and will only be paid match fees.
"This is the best thing to happen to Indian cricket," said leg-spinner Kumble, a veteran of 14 international seasons who helped draft the contracts.
"The players will feel financially secure and not be worried where their next rupee would come from in case they were injured.
"It also benefits the board because the players will now be under the strict supervision of the BCCI even during the off-season.
"A player cannot offer to relax because one bad season may see him not only being downgraded but pushed out of the contracts system altogether," Kumble said.
Legendary all-rounder Kapil Dev also welcomed the move.
"In our time, players who were injured were not paid and that hurt a lot," he said. "Now players can relax and not be worried about their future."