Mr Chatwal, 44, took a plea deal for trying to torch the pair of Jack Russell terriers named Molly and Finnegan outside his condominium last year.
Manhattan Judge Gerianne Abriano asked Mr Chatwal whether he "attempted to cause serious physical injury to two dogs using an aerosol can and lighter to set fire to them?
Mr Chatwal, the founder of the Dream Hotels, answered in the affirmative.
However, Assistant District Attorney Tanisha Palvia said that "given the defendant's mental health history and lack of criminal history and minimal injury to the dogs, we are offering" a no-jail deal.
Mr Chatwal must serve five days of community service, continue mental-health treatment, submit to random drug testing and still live with his parents under the deal, the New York Post reported.
He pleaded guilty to a misdemeanour and an animal cruelty violation charge. If he complies, in one year, the misdemeanour charge of aggravated animal cruelty will be dropped.
Mr Chatwal's name also will be added to the animal abuse registry, and he is barred from owning or caring for a pet for five years, the report said.
Mr Chatwal, who has also acted in Indian and Hollywood films, was arrested in October for attacking the dogs.