The Inheritance of Loss is set in 1986 and unfolds in a non-linear fashion. The story opens on the curmudgeonly and Anglicized judge Jemubhai Patel, his teenage granddaughter, and their cook, living in a dilapidated mansion in the Himalayan village of Kalimpong. A group of young Nepalese separatists invade the mansion, stealing the judge's hunting rifles and liquor. The novel then explains the events leading up to this robbery through flashbacks and interconnected vignettes.
Sai, Judge Patel's teenage granddaughter, moved to his estate, Cho Oyu, after her parents' untimely death in the Soviet Union. Sai, raised in convent schools, is introverted and disconnected from her Indian heritage. Under her grandfather's care, Sai lives in isolation, escaping her dreary existence by reading National Geographic magazines and colonial travelogues. Sai's closest companion and father figure is Judge Patel's servant, referred to as "the cook."
Judge Patel hires two elderly anglophiles, Noni and Lola, to tutor Sai. When Sai's education surpasses Noni's, Judge Patel hires a recent university graduate, a Nepali boy named Gyan, to tutor Sai in math and physics. The two quickly fall in love and become deeply involved despite a vast socio-economic divide.
The novel then shifts focus to Biju, the cook's son. Biju illegally resides in New York City after overstaying his tourist visa. To survive, Biju works low-paying odd jobs in restaurants until his employers inevitably fire him before routine green card checks. In his letters home, Biju exaggerates and idealizes his life in the United States, and in turn, the cook denies rumors of political unrest in Darjeeling. The cook brags about his son to his friends, family, and neighbors, who request Biju assist their sons in obtaining visas.
Biju suffers from poverty, isolation, and racial discrimination from American customers and his immigrant coworkers. Biju questions his own prejudices when he befriends Saeed Saeed, a Zanzibarian Muslim and local legend.
Struggling to find a sense of self while alone and abroad, Biju quits his job at a steakhouse and works at the only restaurant that does not serve beef, an all-Hindu establishment called the Gandhi cafe. Biju longs to return home but is afraid of disappointing his father and cannot legally procure an airline ticket without a green card. While working in dreadful conditions and sleeping in a rat-infested basement, Biju injures his leg, and his employer refuses to pay for his medical treatment. Biju decides to return home after receiving news of the Gorkha National Liberation Front activities in Kalimpong.
The novel narrates Judge Patel's past to explain his cruelty and strange devotion to colonial England. In 1939, during the British Raj, twenty-year-old Jemubhai left India to study at Cambridge University, paying for the trip with the dowry he received by marrying fourteen-year-old Nimi Patel.
Jemu tries to assimilate, but his English classmates, professors, and neighbors cruelly discriminate against him. Jemu undergoes long periods of isolation and grows increasingly ashamed of his appearance and accent. After nearly failing his examinations, Jemu applies for a judgeship in the Indian Civil Service. He returns home to India traumatized and anglicized. He constantly travels, abusing his wife when he returns home because she represents what he dislikes about India. A political rival for office takes advantage of the judge's estranged marriage and Nimi's isolation by inviting her to a rally supporting Jawaharlal Nehru, an Indian nationalist who later becomes prime minister. Disgraced, Judge Patel beats Nimi and sends her back to her family, where she gives birth to their only child. After the collapse of British India, Jemu learns his wife burned to death, likely murdered by her brother-in-law. When Sai comes to live with Jemu, he interprets her arrival as a way to redeem himself for abusing Nimu.
The novel jumps to the "present," and the disparate stories begin to intersect. Conditions worsen for the residents of Kalimpong. Police randomly torture civilians, GNLF members illegally take up residence on Noni and Lola's property, and shortages bring the entire community to the brink of starvation. Gyan and Sai's relationship turns sour as Gyan joins the Gorkha National Liberation Front (GNLF). To Gyan, Sai represents the oppressive social and political systems that prevent him from advancing in life. Having tutored Sai in Cho Oyu, Gyan has intimate knowledge of the mansion. Ge informs the GNLF of the judge's cache of weapons.
Guilt-stricken by his involvement in the robbery but unwilling to answer for it, Gyan ignores Sai as political tensions in Kalimpong worsen. Distraught, Sai secretly follows him to his house one day and sees his abject poverty. After overcoming her initial shock, Sai and Gyan fight in front of Gyan's sister, who reports Gyan's involvement in the GNLF to their grandmother. The matriarch forbids Gyan from attending the Indo-Nepali Treaty burning, effectively ending his involvement with the GNLF. Relieved to no longer be politically aligned, Gyan considers making up with Sai.
The GNLF requires one member of each household to attend the treaty burning. The cook goes in Judge Patel's stead. The parade turns bloody, several police officers are beheaded, and many civilians are injured. The cook barely escapes; traumatized, he returns to Cho Oyu. There, the wife of a drunk wrongfully accused of robbing Cho Oyu begs Judge Patel for charity, but he refuses several times. The drunk's wife, desperate, steals Judge Patel's beloved dog, Mutt, and sells her. Upon discovering the loss of his treasured pet, the judge frantically searches the village and then brutally beats the cook, blaming him for the dog's disappearance.
Meanwhile, Biju arrives in India with all his savings and expensive American goods. Road closures prevent him from taking the bus to Kalimpong. Left with no choice, Biju bribes GNLF members to drive him to the village. After days of driving, the insurgents rob Biju, taking even his clothes and shoes. On his still injured leg, Biju walks to Cho Oyu wearing nothing but a woman's nightdress. The cook and Biju reunite, both overjoyed.
