This is completely new and weird rule for Schengen Visas. I am currently holding a valid Indian passport but residing in Australia for my studies. I recently came down to India to visit my parents on my vacation and intend to travel to Germany after this. But my documents were returned saying that I do not belong to this "jurisdiction". I was born in Bangalore, India why can't I apply in Bangalore? If someone has done this before or experienced something like this please tell me what options did you use.
This is not a new rule. It is expressed in article 6 of the Schengen visa code.
If you have a justification for applying outside your country of residence, the consulate can consider the application. The justification has to be significant, though. For example if you left Australia not planning to travel to Europe and then changed your plans, you would not be made to go to Australia for a visa.
The handbook gives more examples.
You may wish to reapply, including a justification for applying in India. If you do, you should probably read the handbook to get an idea about the kinds of justifications that will and won't be accepted.