The national selectors also decided to rest injured Gautam Gambhir, who missed out on the second Test against Sri Lanka because of a knee injury.
Tamil Nadu off-spinner R Ashwin and Jharkhand batsman Saurabh Tiwary, two promising youngsters who have done well in the domestic circuit, have been retained in the squad to be led by Mahendra Singh Dhoni.
The tri-series, which has host Sri Lanka and New Zealand as the two other teams, will be held in Dambulla from August 10 to 25.
India's pace spearhead Zaheer Khan, who missed the entire Test series against Sri Lanka, has been left out of the team as he has not recovered sufficiently from his shoulder injury.
S Sreesanth, who is recuperating from a knee injury, has not been picked in the squad, announced by BCCI Secretary N Srinivasan after a meeting of the selection committee in Mumbai.
There were no major surprises with the selectors more or less retaining the nucleus of the squad that won the Asia Cup in Sri Lanka in June.
"Ashok Dinda and Manish Pandey will replace R Ashwin and Sourav Tiwary in the Indian team participating in the Emerging Players tournament in Australia," Srinivasan said in a statement.
In the absence of Zaheer, veteran speedster Ashish Nehra will lead the pace attack which also has Ishant Sharma, Abhimanyu Mithun and Praveen Kumar.
Ishant and Mithun, who were not in the Asia Cup squad, have been included this time around probably because they have already acclimatised to the Sri Lankan conditions as they are in the Test squad.
The batting will largely depend on the fireworks of Virender Sehwag while there are a number of young talents like Rohit Sharma, Suresh Raina and Virat Kohli who have already established themselves in the national team.
Yuvraj, who was dropped from the Asia Cup squad because of poor fitness and form, has been given another opportunity to reclaim his position in the team.
In the absence of Gambhir, Tamil Nadu wicket-keeper batsman Dinesh Karthik is likely to open the innings with Sehwag.
Ravindra Jadeja is the lone all-rounder in the squad although there are a number of batsmen who are known to be part time bowlers.
Squad: Mahendra Singh Dhoni (C), Virender Sehwag, Virat Kohli, Suresh Raina, Rohit Sharma, Yuvraj Singh, Ravindra Jadeja, Dinesh Karthik, R Ashwin, Praveen Kumar, Ishant Sharma, Abhimanyu Mithun, Ashish Nehra, Pragyan Ojha and Saurab Tiwary.