Captain Virat Kohli received the mace and cheque from Sunil Gavaskar at a ceremony after the fourth and final Test against Australia, in which Ajinkya Rahane led the side as Kohli could not play due to a shoulder injury.
India had entered the series against Australia needing to win at least one Test to retain possession of the prestigious mace, which it had reclaimed following the Indore Test against New Zealand in October 2016, ICC said in a statement.
The side to finish second will get USD 500,000 while the side finishing third will receive USD 200,000. The fourth-placed team, which is England, will get USD 100,000.
"We are absolutely delighted to have topped the ICC Test rankings. The longest format of the game really tests a team's character and I'm proud that we have proved ourselves to be the best," Kohli said.
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"I'd like to both congratulate and thank everyone who has been part of this success. This includes not only all the players who have been in the squad but also the team management and support staff, without whom we could not have done so well. It has not been an easy journey but all the hard work has been worth it.
"We have maintained our position with some really good cricket in recent months. The team has shown the tenacity to bounce back from difficult situations."
"The horizon has changed with the development of the limited overs formats but Test cricket has held on to its own even 140 years after it was first played.
"Everyone recognizes that Tests are the ultimate trial of a cricketer's caliber. It's good to see the players enjoy the challenges that Test cricket presents and have high regard for others who do well in the format."
"The team has shown great consistency over the last 12 months, it possesses a variety of talent and is an exciting team to watch.
"I'm sure being recognized as the best Test nation is something that the team will really be proud of and I look forward to another year of outstanding Test cricket being played as they look to defend their position.