According to initial reports, police has said that Banerjee was killed by suspected terrorists outside her home in Paktika province.
Some reports also suggest that the Taliban militants barged into her home and tied up her husband along with other family members and took her out of her home, where they reportedly shot dead her.
Police also said that the militants, who killed her dumped her body near a school.
No group has claimed the responsibility on carrying out fatal attack on her.
49-year-old Banerjee had written a memoir on her escape from the terror organisation Taliban in 1995, that became a best-seller in India.
A Bollywood movie starring actress Manisha Koirala, was made in 2003 based on her dramatic escape from the Taliban.
Banerjee, who was married to an Afghan businessman Jaanbaz Khan, recently shifted to Afghanistan.