Indian bank notes above Rs.100 were banned in Nepal as per India's request to curb unauthorised trade between the two neighbours.
During the Nepal-India Inter Governmental Committee (ICG) meeting that concluded in Kathmandu on Sunday, the two sides decided that any Indian national visiting Nepal can carry Indian Rs.500 and Rs.1,000 notes up to Rs.25,000, said Joint Secretary of Nepal's Commerce Ministry Jeev Raj Koirala.
However, both the sides are required to work out modalities before the decision is put into practise.
The new arrangement will mainly benefit Indian tourists travelling to Nepal.
India's Commerce Secretary S R Rao said that the decision was taken during the Home Secretary-level meeting held in Kathmandu in June.
Both sides have said that necessary regulations will be introduced for circulation of the higher denomination Indian bank notes in Nepal during the recent Commerce Secretary-level meeting.