Interior minister Rehman A Malik and Indian external affairs minister SM Krishna inked the agreement here in Islamabad.
The new pact offers eight types of visa.
Under the new agreement citizens, aged 65 and above, would now be able to walk across the border between the two countries and need not go through the hassles of getting a visa from embassies in New Delhi and Islamabad.
The new visa policy between India and Pakistan has eased restrictions on visitors from both the countries.
Another ease for senior citizens is that they will be granted visas on arrival at the Attari and Wagah border in India and Pakistan respectively.
There was no such provision available for senior citizens of both countries.
Under the new arrangement, senior citizens will be granted a visa on arrival valid for 45 days.
The new accord will bring about several changes aimed at easing the visa regime.
There will be a single-entry visitor visa for a maximum period of six months but the stay cannot exceed three months at a time and for five places (currently limited to three places).
Group tourist visas, for groups of 10-50 people, has also been introduced for the first time. This will also be available for students provided they do not seek admission in the other country.
Also, business visa has been separated from visitor visa.
The business visa will have to be issued within five weeks.
People aged more than 65, children below 12 and eminent businessmen are exempted from police reporting.
Pakistanis visiting India have long grumbled about New Delhi's restrictive visa regime for both tourists and businesses.
Previously Pakistani businessmen were restricted to particular cities, so visitors could not travel from Delhi to the nearby thriving business hub of Gurgaon without permission.
Another simplified rule will allow people to enter and exit from different check posts and change their mode of travel. This was not permitted earlier.
"However, this is subject to the exception that exit from Wagah/Attari, by road (on foot) cannot be accepted, unless the entry was also by foot via Attari/Wagah," the statement said.
Under a new category, a visitor visa for a maximum of five specified places may be issued for a longer period of up to two years with multiple entries to senior citizens (above 65); spouse of a national of one country married to person of another country and children below 12 accompanying parent(s).
Also, transit visa will now be issued within 36 hours instead of 72 hours.
Artistes would be allowed a triple entry in both the countries.
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The News on Sunday Special Report: India Pakistan prisoners more editions
We probably didn't need to do this Special Report. Newspaper stories don't matter when it comes to Indians in Pakistani jails and vice versa. In fact, 'vice versa' sums it up. We do to them what they do to us.
Except when the two countries decide to begin talking, yet again! This time a little before the foreign secretary level talks, some Pakistani prisoners were released by India (and vice versa must have happened) and some more were release....read more
For the past 2 years the Jang Group and Geo have been working on a project of great national interest; one that we hope will help usher in an era of peace and prosperity in the country and indeed, in the region. And one that hopefully all Pakistanis can be proud of. more
The Jang Group has entered into an agreement with the Times of India Group, the largest media group of India, to campaign for peace betw