The film is in its final stages of scripting and set for release in 2014 to coincide with the 450th birth anniversary celebrations of the world famous English playwright.
"I need a violent, political backdrop for 'Hamlet'. Also, I believe that in the mainstream, we haven't really made a film about what is happening in Kashmir," Bhardwaj said here on Friday.
"I hope I am able to achieve that as it is a very difficult subject to handle - Kashmir as well as 'Hamlet'. I have made things difficult for myself but I thought for my trilogy let me at least attempt something bigger than me," he said about his third and final instalment based on Shakespeare's tragedies after 'Maqbool' (Macbeth) and 'Omkara' (Othello).
Past recipients of the SACF award have included filmmakers like Shyam Benegal and Gulzar.
"In this centenary year as we celebrate 100 years of Indian cinema, Vishal Bhardwaj was an obvious choice for the honour. His films prove that popular Indian cinema can be so deeply rooted in literature," said SACF director Lalit Mohan Joshi.
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