Indian Space Research Organisation (ISRO) chief K. Sivan said Thursday that the ambitious project would follow a successful launch of a manned space flight scheduled by 2022.
"Our space station is going to be very small... useful to carry out experiments," Sivan told reporters in New Delhi.
"We are not having a big plan of sending humans on tourism and other things," he added.
A space station is capable of hosting crew members for years on end, and provides facilities for experiments and support vehicles to dock.
India's first manned space mission -- named Gaganyaan -- is due to take place by 2022, in time to commemorate 75 of years of the country's independence from Britain.
It will have two or three astronauts on a maximum seven-day mission.
The Indian announcement comes a day after the country unveiled an unmanned moon lander expected to be launched on July 15 for a touchdown on the lunar surface around September 6.
India successfully sent a first lunar mission to space in 2008, playing a crucial role in the discovery of water molecules on the moon.
The country has made giant strides on its space journey in recent years and has been a pioneer in low-cost technology.
It sent a mission to Mars in 2014 for just $74 million -- a fraction of the $671 million spent by the US space agency NASA.
ISRO also plans to send a mission to study the Sun in 2020, and to Venus by 2023.
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