India requires 309 runs for victory, while Australia needs eight wickets to triumph on the final day of the Third Test at the SCG.
The Aussies took two wickets in the final session, dismissing both Rohit Sharma (52) and Shubman Gill (31) late in the day as the tourists ended 2-98 at stumps.
Pat Cummins and Josh Hazlewood got the wickets for Australia, who earlier stretched their lead led by third gamer Cameron Green who blasted his way to 84 before the declaration.
Steve Smith added to his first innings century with 81 before falling to Ravi Ashwin, while Marnus Labuschagne was caught behind for 73.
Australia coach Justin Langer was delighted with Green’s maiden Test half-century, which reiterates the hosts made the right call to drop Travis Head and not the young West Australian.
“A lot of people have talked about this sixes he hit but I just thought his whole innings, the way he was driving the ball down the ground, was looking to push and hit ones, he looks like a real class act and he played beautifully today,” Langer said.
“It will be a relief for him to get his first Test fifty, would have been nice for him to get his first hundred, but he’s a great guy to have around and he’s doing a good job.”
India will need to defy history on the final day to claim victory or pull off a draw to keep the series locked at 1-1.
India’s best-ever successful final innings run chase was 406 in 1976, while only two sides have ever bettered that mark, although both were against Australia in the past 20 years - the West Indies in 2003 and South Africa in 2008.