The accusation of a cross-border raid resulting in military deaths is rare in Kashmir, where a ceasefire has held between these two wary allies for a decade.
Tensions over the disputed region are never far from the surface, however, as the two nuclear-armed nations have fought two full-scale wars over Kashmir.
The Pakistani military's public relations office said in a statement that another Pakistani soldier was critically wounded in the incident.
They said troops were still exchanging gunfire after a raid crossed the "line of control" dividing the Indian and Pakistani sides of Kashmir in Haji Pir sector and raided a checkpoint called Sawan Patra, the military said.
The remote area where the incident occurred is up in Himalayan mountain peaks.
Colonel Brijesh Pandey, a spokesman for the Indian army in Kashmir, said that Pakistani troops "initiated unprovoked firing" and fired mortars and automatic weapons at Indian posts early in the morning. He said Pakistani shelling had destroyed a civilian home on the Indian side.
"We retaliated only using small arms. We believe it was clearly an attempt on their part to facilitate infiltration of militants," he said.
India often accuses Pakistan of sending militants into the Indian-controlled part of Kashmir, often under cover of these types of skirmishes.