The IOC suspended India for electing officials accused of corruption in 2012, in breach of the Olympic charter.
But on Sunday the IOA conducted fresh elections which were seen as fair.
Indian athletes have been competing at the Sochi Winter Games under the IOC flag but can now do so under their own.
“The decision means Indian athletes can compete for their national Olympic committee. They can walk behind their national flag at the closing ceremony,” IOC spokesman Mark Adams was quoted as saying by the AFP news agency.
“The Indian flag will be raised in the [Sochi Winter Games] village, at a time to be announced,” Mark Adams added.
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