The selection procedure for picking the candidates is quite strict and elaborate. The four steps  involved are

• Scanning of Application

• Testing Officer like Qualities

• Conducting Medical Examinations

• Preparing All India Merit List

Scanning of Application
After checking all eligibility wise application forms for the three branches, you will receive a call letter with further instructions.

If you have applied to the Flying Branch through the NDA or CDSE, your applications will be sent for processing to UPSC. There after you will receive a call letter for writing the UPSC Exam. Men after clearing the UPSC Exams take the pilot aptitude battery test (PABT). If you are a woman applying for the Short Service Commission or applying as an NCC Senior Division 'C' Certificate Holder, you skip the UPSC Exams, and move to the next step i.e PABT, after your application has been processed. PABT comprises a written test in which a candidate's perception and grasp of the subject is gauged. This is followed by two machine tests for checking the basic co-ordination and psychomotor skills.

If you have applied to the Ground Duty Branch, your application will be sent to the Air Headquarters for short-listing. Then the candidates need to undergo an officer intelligence-rating test.

If you have applied to the Technical Branch, you will be required to take the Engineering Knowledge Test (EKT). If you pass the EKT, you move to the next step. 

Testing Officer like Qualities 
After you have successfully cleared Step 1, you will receive a call letter to report to any one of the Air Force Selection Boards (AFSB) located at Dehradun, Varanasi and Mysore. At the Air Force Selection Boards, you undergo a number of psychological tests, an interview and group activities, which are collectively called the Officer Like Qualities (OLQ) Tests. 

The Psychological Tests are written tests that are conducted by a Psychologist. 
The Group Tests are interactive indoor and outdoor tests. We expect active physical participation from you. 
The Interview involves a personal conversation with our Interviewing Officer.

All of the above are screening tests. If you do not make the passing grades, you are routed back home the same day. If you have applied through NDA/CDSE (for Flying Branch) there is no screening; you are tested for your second/third choice of Army and Navy.

At the conference held on the last day, all the assessors, i.e. the Psychologist, Ground Testing Officer and the Interviewing Officer, discuss your performance. Based on your performance, you will be selected for the next step.

Conducting Medical Examinations
If you have applied for the Flying branch and are found suitable by the Selection Board, you would be sent to the Air Force Central Medical Establishment, New Delhi or the Institute of Aviation Medicine, Bangalore for a thorough medical examination.

If you have applied for the Technical or Ground Duty Branches and are found suitable, you would be asked to return home and await a call for a medical examination depending upon your position in the merit list.

Preparing All India Merit List
An All India merit list is compiled on the basis of your performance at the group tests as well as the medical examination. If you qualify the merit list, depending upon vacancies, you are instructed to go to the training academy.

Source : Indian Air force Official site