There are many small towns which you can visit in North India in low budget. Kasol, Dharamshala, McLeod Ganj, Chamba, Shimla, Nainital, landsdowne, etc You just have to find, try and book travellers hostel and try going around in public vehicles. it's cheap as well as fun.
It's completely depends on no of people and how many days you will be there..
for me, Uttarakhand or Himachal will be good options for you..
you can go to Rishikesh-Haridwar Ranikhet-Auli
Kasol tosh Pulga