Cricket Australia said in a statement that Smith has been released by Pune Warriors and he would be returning home for treatment of a lower back complaint in a bid to recover for next month's Australia A series in England.
"Smith, who has been playing for the Pune Warriors, was not likely to be considered for any of the remaining matches and with the approval of Cricket Australia, he will be returning home for treatment," the CA said.
Smith has been named vice-captain to Brad Haddin for the Australia A games, which begin on June 7, the CA expects him to be fit for the series in England.
"CA expects Smith to be fully fit for his upcoming commitments with Australia A, where he will be vice-captain," the statement added.
Smith missed out on a place in Australia's Ashes squad despite being one of the strongest performers with the bat on the recent Test tour of India, where his footwork against the spinners put him second only to captain Michael Clarke on Australia's batting averages.