I have declared only that much budget to upgrade my old PC not for any any new PC, because as far as I know components of that time is much cheaper today. So please tell me which CPU(under rupee 1000) and GPU(under rupee 1000) for my old PC to get a smoother experience.
I don't think this is possible under these budget constraints. Save it towards a new build because there's very little meaningful you can do with a 13-year-old PC with 2000 rupees for upgrades. Even something like a very basic GPU like a GT 730 that will struggle at recent games will cost like three times the combined budget by itself.
So if you have 2000 Rupee - buy an SSD
Then learn how to install/copy your windows 7 onto it, this is the ONLY option you have for a smoother PC
Unless you have not checked your computer for Malware and Viruses, so then you need to download and install Malwarebytes and MSE - which will scan your computer for bad software and delete it.
Also, knowing that you are in India, means the chances of your Windows being Original is low, so it could disable Windows if you don't know what you are doing.
Problem is you First don't have a gpu second is your mobo doesn't support core2quad upgrading your cpu to an e8500 will have little to no difference in performance.Best bet is save some money get a 2200g(has igpu) if your really budget orientated then you can do as my brother and get away with an A320 mobo which are dirt cheap(yes i know can't overclock but its a tight budget build.)Just get 2x4gb ram as i doubt you will add 16gb ram as its a little expensive