Many callers are expected to use cyber cafes
The move, part of the Indian Government's telecom reforms, came into effect on Monday.
It will offer Indians a cheaper alternative to expensive long-distance calls, with the country's rates among the highest in the world.
Long distance tariffs have dropped significantly in recent months and are expected to fall by another 15-20% from Monday, after government deregulation.
Later this month, a number of private companies will offer long distance services, ending the monopoly of the Videsh Sanchar Nigam Ltd (VSNL) a state-owned firm which was recently privatised.
Internet calls
Although the number of Indians with personal computers is quite low, many are expected to make use of the facility through cyber cafes.
Some internet service providers are planning to offer consumers prepaid calling cards.
"We will sell the cards through 10,000 retail outlets across India over the next few months," Jasjit Sawhney, CEO of internet service provider Net4India, told BBC News Online.
"We hope to sell about 3-4,000 cards over the next year."
Calls to Britain and the United States are expected to cost about 10 rupees and five rupees a minute (20 and 10 cents), down from current rates of about 45 rupees ($1).
Observers say internet calls will attract many individual consumers in India, where phone penetration is fairly low.
States like Punjab and Gujarat, from where a high percentage of expatriate Indians hail, are being especially targetted.
But it was unlikely to appeal to corporate users because of the inferior quality.
However, Mr Sawhney believes that many small businesses could use the facility.
"Many of these businesses have been using the facility illegally up until now," he said.
Rates slashed
Also on Monday, the decades-long monopoly held by VSNL ended heralding a fall in long-distance rates.
"We expect call charges from India to come down by 40-50% soon," Kobita Desai, analyst at Gartner Inc., told Reuters.
The Indian long distance telephone market is estimated to be valued at about $1.2bn a year, and is expected to grow by about 15-20% each year.
Until now, 80% of the long distance market consists of incoming calls but this is expected to change as prices drop, prompting more Indians to call abroad.