The top Indian general received an insignia, sword and citation from President Yadav at a special function in the Rastrapati Bhawan on Thursday evening.
Defence Minister Vidya Bhandari, Nepal Army Chief Gen. Chhatraman Singh Gurung and Indian Ambassador to Nepal Rakesh Sood were among the top dignitaries present at the function.
The honour for General Kapoor comes after Nepalese army chief General Chhtra Man Singh Gurung was conferred with the Honorary title of General of the Indian Army by President Pratibha Patel in New Delhi on December 14, upholding a six-decade old tradition.
Indian General N C Vij had also received the top honour in 2003 from the then King Gyanendra, who was deposed by the 601-member Constituent Assembly in 2008.
Gen Kapoor has underlined the "special military relationship" between the armed forces of India and Nepal.
"We enjoy a special military relationship and we should try to make it exemplary for the rest of the world, in the days ahead," Gen Kapoor told Principal Staff Officers of the Nepal Army at the Army Headquarters here on Tuesday.
"Nepal Army and the Indian Army have traditional linkages and this will not be affected by political changes and whoever heads the government," said Gen. Kapoor, who will return to India tomorrow, wrapping up his four-day official visit to Nepal.