The new agreement would replace a 38-year old tardy visa regime signed in 1974 by two countries.
Announcing the new regime, Home Minister Sushilkumar Shinde said, "This new visa regime will pave the way in promoting people-to-people contact. We have already issued circular to all Indian missions abroad and state governments notifying the introduction of the new visa regime."
On the occasion, visiting Interior Minister of Pakistan Rehman Malik said, "Time has come to forget the old days. This visa regime will take bilateral relations forward. It will bring good trade, will remove this miscommunication...This is not only a historic step but a step forward for peace that we are looking for generations."
He said people travelling from Wagah to Lahore would get a "complimentary ride".
The new agreement would facilitate multiple-entry and reporting-free visas for businessmen, allowing them to visit five cities instead of three as per the older system.
It would exempt police verification for businessmen with an annual income above Pakistani Rs five million or annual turnover above Pak Rs 30 million or equivalent in Indian currency travelling on business visa, a statement issued on the occasion said.
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"Now entry and exit from different designated immigration check posts can be allowed, if indicated in application. However exit from Wagah-Attari on foot cannot be accepted unless the entry was also on foot via Attari-Wagah," it said.
Under the new regime, visa on arrival to citizens over 65 years will start in four weeks from January 15. The visa will be for 45 days with single entry at Attari-Wagah checkpost. (More)