Jhabvala, 85, breathed her last at her home in Manhattan after a long illness.
She has a long association with Merchant Ivory Productions which yielded her two Academy Awards for her work on the films 'A Room with a View' and 'Howards End'.
India was the inspiration for many of her stories, including 'Heat and Dust', which won her the Booker in 1975.
Jhabvala wrote 19 novels and short-story collections that reflected the cultures she absorbed on three continents during her half-century career.