Yes, you need a Schengen Visa for Iceland. Iceland comes in the list of 26 Schengen countries which means that you do not need an exclusive visa for Iceland. A schengen visa will do. A Schengen visa gives you an access to all the 26 countries included in the list of Schengen countries along with Iceland. The Embassy of Denmark handles visa applications for Iceland in India. The visa application is to be filled and submitted to The Embassy of Denmark located in New Delhi. The documents required includes a passport with at least 3 months of validity from the date of arrival in India, and at least two blank pages, latest passport size photographs and any government issued Id.
The tourist visa/short stay visa is valid for a duration of 90 days and takes 16 days to process. The visa fees costs INR 4560 along with INR 1569 VFS service fees.