A contingent of Punjab Police reversed their arms and then fired shots in the air as a mark of respect to 49-year-old Sarabjit, who died yesterday in a Lahore hospital.
The pyre was lit by Sarabjit's sister Dalbir Kaur in the presence of his wife Sukhpreet Kaur, daughters Swapandeep and Poonam and son-in-law Sanjay.
Dalbir Kaur was assisted by local SAD MLA Virsa Singh Valtoha.
A large crowd comprising villagers and VIPs, including Congress Vice President Rahul Gandhi, bid a heartfelt adieu to Sarabjit, whose body was brought here late last night 23 years after he inadvertently crossed over to Pakistan.
The final journey of Sarabjit commenced at around 1.15 PM with his coffin, wrapped in the tricolour, being taken to a flower-bedecked hearse van stationed adjacent to a government school ground where the body had been placed for the people to pay their last respect.
Punjab Chief Minister Parkash Singh Badal and Union Minister of State for External Affairs Preneet Kaur were among others present.
Badal had announced a state funeral and three-day state mourning besides financial aid to the family and government jobs for his daughters.
A Granthi recited prayers at the cremation ground before the pyre was lit. People climbed rooftops of nearby houses to have a last glimpse of Sarabjit.