The UPA government on Thursday announced its decision to raise prices of mobile phones by imposing a six percent hike in excise duty on handsets.

Finance Minister P Chidambaram, who presented his eighth annual budget in Parliament, said an additional duty will be imposed on handsets which are priced above ₹2,000. He also said that 70 percent of imported mobile phones and 60 percent of indigenous handsets are priced less than ₹2,000.

"Mobile phones enjoy a concessional excise duty of 1 percent and I do not propose to change that in the case of low-priced mobile phones," Chidambaram said in his budget speech.

"However, on mobile phones priced at more than ₹2,000 I propose to raise the duty to 6 percent."

The news of the additional tax has not gone well in the handset industry. Reports suggest that smartphone makers Nokia, Samsung and other domestic players are likely to increase the cost of the mobile phones by five percent to 10 percent in the coming days.

"We do not see the Budget reviving the consumer sentiments in the absence of any specific incentives. Further, the increase in the excise duty on mobile phones will have a negative impact on the mobile industry and should lead to an increase in prices for end consumers," said Asim Warsi, VP -Samsung Mobile, The Times of India reported/

SN Rai, co-founder & director of domestic mobile phone brand Lava also expressed similar concerns. "There will a significant impact of this excise duty hike on all the players as increasingly average selling prices are going up. For us it's inched up to ₹3,000. This move will largely hit the mid-tier consumers who want to upgrade from a basic feature phone to an entry-level smartphone," he said.