Home to top multinational firms, expensive condominiums and gleaming malls, Gurgaon in Haryana state is popularly called the Millennium City.
Proximity to Delhi's airport makes it an attractive residential destination for upwardly mobile professionals.
The guru referred to in the new name is Guru Dronacharya, a master archer who figures in the Hindu epic, Mahabharata.
Reports say the the Bharatiya Janata Party (BJP) government of Haryana switched to Gurugram - an ancient name for the area meaning "village of the guru" - following a local campaign.
"The district derived its name from the name of Guru Dronacharya... it came to be known as Guru-gram, which in course of time got distorted to Gurgaon," the district's official website said.
The name change has led to a huge buzz on social media and #Gurugram was trending on social media for much of Tuesday.
Over the last two decades, Gurgaon has been transformed from farming fields to a bustling technology hub, thanks to the call centre and outsourcing industries.
However, its success has come with little support from government and the city lacks adequate public transport and sanitation facilities.
Several Indian cities have been renamed in recent years to reflect local languages and nationalist sentiment.
India's business city of Gurgaon on the outskirts of the capital, Delhi, will be officially renamed Gurugram.