A charged crowd of around 5,000 people attended the funeral of Waheed Noor Khan in Rawalakot, Azad Kashmir and chanted slogans against India.
Officials described the return of Khan's body as the first time such an exchange had happened.
"It has happened for the first time that India has handed over the body of an alleged militant to Pakistan," Hamid Mughul, a senior administration official in Azad Kashmir, told AFP.
Khan had been arrested by Indian forces around six years ago while he was allegedly crossing the border. He was charged on four counts, but was acquitted of three of those charges in Indian Kashmir.
While being transported to court on June 20 to hear on a fourth and final case in the town of Saupur, a bomb blast left him dead.
"He was our fighter, he gave his life for liberation of Kashmir, his martyrdom gives a new zeal to all the liberation fighters of Kashmir, we will fight till India runs away," Syed Salahudeen, chief of the United Jihad Council, claimed in his address.
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