The IAF pilot's release was seen as a major step towards defusing a tense situation triggered by India's retaliation over Pakistan's continued support for terrorism.
The Indian pilot's ordeal since being shot down on Wednesday had made him the focal point of the crisis and he returned to his homeland to a hero's welcome, with crowds thronging the Wagah border crossing and waving Indian flags.
His handover took several hours as procedures including a checkup to verify his health and medical condition were completed before he was turned over to Indian officials.
When he crossed over to India Friday night, his right eye above his handlebar moustache appeared swollen.
Also in Pakistan-administered Kashmir, government official Umar Azam said Indian troops with heavy weapons "indiscriminately targeted border villagers" along the Line of Control, killing a boy and wounding three others.
What does the pilot say?
On Wednesday, Pakistan army said it shot down two Indian fighter jets along the LoC and captured an Indian pilot.
Pakistan arrested the pilot this past week after shooting down two Indian planes in Kashmir, which is split between the countries but claimed in its entirety by both.
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Abhinandan was captured a day after Indian planes bombed what New Delhi said was a militant camp in Pakistan, in retaliation for the Kashmir suicide bombing claimed by a Pakistan-based militant group.
India accused Pakistan of harbouring the Jaish-e-Mohammad group behind the attack, which Islamabad denied, and Prime Minister Narendra Modi promised a strong response. According to the Indian Air Force, in the same clash another MiG-21 shot down Pakistan's F-16 of United States manufacture.
Pakistan has been at pains to insist it wants talks to end the crisis. Initially he was apprehended and trashed by a mob and was rescued by Pakistan Army soldiers.
"I have spent time with the Pakistan army".
Fighting resumed overnight Friday.
The bombing opened old wounds, triggering a fresh round of conflict.
Despite the pilot's return, the path forward was uncertain for two countries that have faced off for years along the Kashmir boundary known as the Line of Control, in one of the world's most volatile regions. The developments came a day after India conducted airstrikes against alleged militant positions in Pakistani-controlled Kashmir. On Friday, four security personnel and a civilian were killed in a gun battle with militants, officials said.
India and Pakistan have been locked into a dispute over the territory of Kashmir since partition in 1947.