International Cricket Council (ICC) match referee Mike Procter handed the off-spinner a three match ban. However, the ban will not come into effect immediately and Harbhajan can continue to play.
The appeal will be made to the Commissioner of Appeals.
Reacting to the ban, the Board of Control for Cricket in India (BCCI) Vice President Rajeev Shukla said the Board would contest the ban.
''Both Harbhajan and BCCI will appeal against the ban within 24 hours,'' Shukla said.
Shukla also ruled out cancelling the tour for the time being and said,''There is no question of cancelling the tour, it will go ahead as plan.'' Harbhajan Singh was charged under Level 3 of the International Cricket Council's Code of Conduct following an alleged incident that took place during the second Test between India and Australia at the Sydney Cricket Ground (SCG).
The charge was laid by match umpires Mark Benson and Steve Bucknor after the close of play on day three of the match following a complaint they received from Australia captain Ricky Ponting.
The complaint was made by Ponting after the 116th over of India's first innings, prior to which Harbhajan is alleged to have made a comment directed on Andrew Symonds.
Harbhajan and Symonds exchanged words shortly after the Indian had reached his half century. Play was delayed for several minutes while the umpires spoke to Harbhajan on the pitch.
The alleged offence falls under 3.3 of the ICC Code of Conduct which refers to players or team officials ''using language or gestures that offend, insult, humiliate, intimidate, threaten, disparage or vilify another person on the basis of that person's race, religion, gender, colour, descent, or national or ethic origin''.