Investigators said explosives were planted inside a video cassette recorder placed in front of the store in the town of Rajouri, 150km northwest of Indian Kashmir's winter capital Jammu.
Doctors at the Rajouri hospital said four people died in total. Twenty-eight were injured, some need to be airlifted for treatment to Jammu, due to the seriousness of their injuries.
In a separate incident, police in Indian Kashmir said on Sunday three civilians were killed and five wounded when Pakistani troops fired artillery shells overnight across a military control line.
"Our troops also retaliated with artillery fire and the exchange continued through the night," a senior police office told reporters.
He said at least a dozen buildings were damaged in the shelling in the Tulial area, 120km north of Srinagar, the summer capital of Jammu and Kashmir.
Artillery duels across the 740km ceasefire line dividing Kashmir India and Pakistan have continued despite tentative peace steps aimed at resolving decades of animosity.
Opposition to India's army is as
violent as ever in the last week
Elsewhere, Police in Pakistani Kashmir said Indian troops fired on Pakistani forces in the southern district of Rawalakot and Jura town, 60km northeast of Muzaffarabad, capital of Pakistani administered Kashmir.
"The firing started last evening and continued until late night," a Muhammad Yunis, a police official in Muzaffarabad said. "So far, we have not received any report of casualties."
The South Asian rivals were on the brink of war last year over Indian allegations that Pakistan arms and trains Islamists fighting Indian rule in Kashmir.
Ties have improved in recent months, but India has linked fresh talks to an end in attacks in Indian administered Kashmir.
Islamist fighters have been fighting since 1989 to end Indian rule in Kashmir, the country's only Muslim-majority state.
The conflict has left more than 38,000 people dead by official count. Separatists and Pakistan put the death toll between 80,000 and 100,000.