The rules come weeks after Shiv Sena MP Ravindra Gaikwad beat up an elderly Air India employee after altercation over seat allocation.
Civil Aviation Ministry on Friday issued a draft rule for no-fly list.
More than 10,000 cases of unruly behaviour by passengers were reported in 2015 by airlines across the globe, ANI news agency said quoting International Air Transport Association figures.
Level two will include physically abusive behavior like pushing, kicking, and sexual harassment.
Level 3 - Murderous assault or life-threatening behaviour, damage to aircraft operating systems for which suspension will be for 2 years or more.
Choubey also said that the punishment for offenders will be corresponding to the level they fall in.
The passenger will not face a blanket ban; however, the Centre has proposed empowering other airlines to also impose a similar ban on the passenger.
The government has recommended three levels of unruly behaviours, each with a corresponding duration of flying ban.
The draft was made public by Aviation Minister Ashok G. Raju and his Deputy Jayant Sinha. "If worldwide carriers want this input, they can use it", RN Choubey, Civil Aviation Secretary, said. This level of offence will carry a flying ban of three months.
The Secretary informed the media that after placing the draft on public domain and getting responses and suggestions, the Ministry is confident that the matter would be finalized by the end of June, 2017. The government announced draft rules for a national "no-fly list" which proposes a ban on domestic air travel that can last for a period ranging from three months, to two years or beyond. The next point of appeal will be an aviation ministry committee headed by a retired High Court judge.
Choubey explained that the proposal also provided an appeal provision for passengers.
Civil Aviation Ministry has proposed to bring out a "National No-Fly" list.