The CDS will be a four-star general and his salary will be equivalent to that of service chiefs.
In a landmark decision, the government on Tuesday approved the creation of a chief of defence staff in the rank of a four-star General who will act as the principal military adviser to the defence minister on all matters relating to tri-services.
The government has also decided to create a new department of military affairs under the defence ministry, which will be headed by the CDS as its secretary.
Prime Minister Narendra Modi on August 15 announced that India will have a CDS as head of the tri-services.
The creation of the CDS as the single-point military adviser to the government was suggested by the Kargil Review Committee in 1999.
A key mandate of the CDS will be to facilitate restructuring of military commands for optimal utilisation of resources by bringing about jointness in operations, including through establishment of joint/theatre commands, officials said.
They said bringing about jointness in operation, logistics, transport, training, support services, communications, repairs and maintenance of the three services within three years will be a major mandate of the CDS.
All the major world powers have similar positions in their militaries.
The defence ministry said the tri-service agencies, organisations and commands relating to cyber and space will be under the command of the CDS and he will also function as the Military Adviser to the Nuclear Command Authority.
The CDS will also be member of Defence Acquisition Council chaired by the defence minister and Defence Planning Committee chaired by the NSA.
"The decision to create CDS is a major step towards bringing about jointmanship between the Armed Forces," Defence Minister Rajnath Singh tweeted.
The defence ministry said the Union Cabinet approved creating the post of CDS in the rank of a four-star General with salary and perquisites equivalent to a service chief.
Official sources said the decision on CDS was taken at a meeting of the Cabinet Committee on Security.
"The Chief of Defence Staff, apart from being the head of the Department of Military Affairs, will also be the Permanent Chairman of the Chiefs of Staff Committee," the defence ministry said.
The Chiefs of Staff Committee comprises the three service chiefs and the senior most among them acts as its chairman.
"The three chiefs will continue to advise the defence minister on matters exclusively concerning their respective Services. The CDS will not exercise any military command, including over the three service chiefs, so as to be able to provide impartial advice to the political leadership," the ministry said.
It said the department of military affairs headed by the CDS will deal with a plethora of areas including the Army, Navy and the Indian Air Force as well as with Integrated headquarters of the Ministry of Defence.
It will also deal with the Territorial Army besides procurement exclusive to the services except capital acquisitions as per prevalent rules and procedures.
The mandate of the military affairs department will also include promoting jointness in procurement, training and staffing for the services through joint planning and integration of their requirements.
The new department will also work towards promoting use of indigenous equipment by the services.
The defence ministry said ensuring optimal utilisation of infrastructure and rationalise it through jointness among the services will be a key function of the CDS.
He will also oversee implementation of the five-year defence capital acquisition plan (DCAP), and the two-year roll-on annual acquisition plans (AAP).
The CDS will also assign inter-services prioritisation to capital acquisition proposals based on the anticipated budget besides bringing about reforms in the functioning of three services aimed at augmenting combat capabilities by reducing wasteful expenditure.
"It is expected that this reform in the higher defence management would enable the armed forces to implement coordinated defence doctrines and procedures and go a long way in fostering jointmanship among the three services," the defence ministry said.
"The country would be benefitted by coordinated action on greater jointmanship in training, logistics and operations as well as for prioritisation of procurements," it said.
The government is likely to appoint the country's first CDS in the next few days. Army Chief Gen Bipin Rawat, due to retire from service on December 31, is believed to be a front-runner for the post.
A high-level committee set up to examine the gaps in the country's security system in the wake of the Kargil war in 1999 had called for appointment of a CDS as a single-point military adviser to the Defence minister.
A group of ministers analysing required reforms in the national security system had also favoured appointing a CDS.
In 2012, the Naresh Chandra Task force had recommended creating the post of a permanent chairman of the Chiefs of Staff Committee.
