All 32 policemen were caught allegedly demanding and accepting bribes from one man, who also set up a hidden camera to record the actions of the cops, The Times of India reported.
Mohammed Khan was carrying out modification work at his friend's ground-plus-one (two-storey) home in the Mumbai suburb of Kurla West when he was approached by police demanding money.
Khan, 50, said police threatened him, said his modifications were illegal and he would be investigated unless he paid money, the Times report said.
After paying several policemen over several days Khan set up a hidden camera to record further alleged bribery attempts.
The camera footage showed policemen arriving at the worksite over a 10-day period and allegedly demanding payment.
Khan said he handed over around at total of $825 to 35 policemen during the 10 days.
"The cops said they were collecting the money on behalf of their senior officers from (the local) Nehru Nagar police station," Khan told the Times.
Initial attempts to have police take an interest in his allegation -- including his recorded visits of policemen to the building site -- failed.
"I first submitted a copy of the footage to the Anti Corruption Bureau, but they refused to accept my complaint which, according to them, did not make for 'proper' evidence," Khan said.
"The same footage was sent to higher officers in Mumbai police who initiated an inquiry into the case."
Deputy Commissioner of Police Lakhmi Gautam said 32 policemen are suspended with immediate effect and "a further probe will be carried out against them."
The announcement of the investigation into the alleged corruption came on the same day as a former police commissioner was sentenced to five years in jail on corruption charges.
He allegedly demanded around $10,800 from a junior officer in return for protection from an internal police inquiry, The Times of Indian reported.
Bribery is a continuing problem in the construction sector which results in poor quality and unsafe buildings.
Authorities in Maharashtra state, in which Mumbai is located, have launched an anti-corruption drive after 74 people were killed in a recent building collapse, the BBC reported.
Builders will bribe police and local administration officials to turn a blind eye to poor safety standards, the BBC report said.
As many as 74 persons, including a large number of children, were killed April 4 when the seven-story illegal building under construction collapsed in Mumbra, a town in the greater Mumbai region.
Police continue to arrest people in connection with the Mumbra collapse -- the latest being an assistant municipal commissioner of the Thane Municipal Corp.
Among the arrested in the case are senior Thane Corp. engineers, an architect, building supplies firms and a local journalist, a report by Mumbai daily newspaper DNA said.
Two builders face charges of culpable homicide not amounting to murder and criminal conspiracy over the case, the DNA report said.