The 70-year-old actor died of bladder cancer at a hospital in Mumbai this morning.
Khanna joined the Bharatiya Janata Party (BJP) in 1997 and was a Member of Parliament from Gurdaspur, Punjab. The sitting MP had won the seat four times.
Finance Minister Arun Jaitley tweeted, "Condolences on sad demise of veteran actor & BJP MP Shri #VinodKhanna ji, may God render peace to the departed soul & solace to his family.
"Shri #VinodKhanna ji was a great actor and a gentleman politician - will miss him."
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"I deeply mourn the demise of senior @BJP4India parliamentarian Vinod Khanna, a versatile film personality and a great human being," he wrote.
Maharashtra Chief Minister Devendra Fadnavis remembered Khanna as a Bollywood legend.
"Saddened to know about the demise of one of the greatest legends of Indian cinema, former Union Minister and BJP MP @ Vinod Khannaji," Fadnavis tweeted.
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