Ringing Bells earlier said their Freedom 251 phone would be priced under 500 rupees(£5;$7.3), but at the launch on Wednesday, it said it would cost just 251 rupees($3.67; £2.56).
The phone has 8GB storage and cameras in the front and back.India is the world’s second-largest mobile market and has one billion mobile phone subscribers.
Freedom 251 is expected to target a market already dominated by low-cost handsets.
"This is our flagship model and we think it will bring a revolution in the industry, " the AFP news agency quoted a spokeswoman as saying.
At present, the firm imports parts from overseas and assembles them in India, but plans to make its phones domestically within a year, she added.
Ringing Bells was set up a few months ago and recently launched one of India’s cheapest 4G smartphones at 2, 999 rupees, the Press Trust of India reported.