A bank in India cuts tax before crediting your NRO interest. A buyer cuts tax before paying for your flat. Money lands lighter than expected, and a quiet conclusion follows: India has taken its share, matter closed.
It is a comfortable conclusion. It is also, in a large number of cases, wrong — and expensive in one direction only, yours.
Withholding is not assessment. Withholding is a blunt, deliberately generous-to-government estimate taken before anyone has looked at your actual position. Average refund claimed by an NRI filing in India last year was around ₹1.26 lakh. That money was never a gift. It was over-collected, and it sits with government until somebody asks for it back.
Why over-withholding is normal, not an accident
Rates applied to non-residents are flat, high, and blind to your circumstances.
NRO interest is hit at roughly 30%. No slab benefit is applied at deduction stage, no deduction for anything, no view of whether your total India income is ₹2 lakh or ₹20 lakh.
Property sale TDS is cut on sale value, not on gain. Somebody selling a flat bought in 2009 pays withholding on entire consideration, while real taxable gain after indexation or exemption may be a fraction of it — occasionally nil.
Rent from an Indian property faces deduction at a non-resident rate, again before standard deduction, municipal taxes or home-loan interest reduce what you actually owe.
Dividends and mutual fund payouts get their own cut, often above what treaty relief would permit if a residency certificate were on file.
Each of these is a system designed so government never loses. Nothing in it is designed so you get your correct number. That part is your job.
A myth doing real damage: "income up to ₹12 lakh is tax-free now"
That headline came from a rebate under Section 87A. Rebate is available to residents.
Non-residents do not get it.
An NRI reading that headline, seeing income below that level, and deciding filing is pointless has just abandoned a refund. Withholding already happened at 30% on interest, at full value on a sale, at flat rates on rent. Nobody returns it automatically. Skipping a return converts over-withheld tax into a donation.
Same logic applies to a second common belief — "my income is small, so nothing is due". Small income and zero liability are exactly when refund is largest relative to what was cut.
Where your money is usually hiding
In practice, four buckets account for almost every NRI refund we recover.
- NRO interest — 30% withheld, actual liability frequently lower once your India-only income is totalled.
- Property sale — TDS on gross consideration against tax due on gain. Gap here is often several lakh, sometimes more than value of everything else combined.
- Rental income — deduction taken on gross rent, before standard deduction at 30%, municipal taxes and interest on a home loan.
- Treaty relief not applied at source — a UAE, US, UK, Singapore or Australia resident entitled to a lower rate, taxed at domestic rate anyway because no residency certificate reached that payer in time.
Add a fifth, quieter one: tax deducted and never matched to your PAN correctly, so it shows in your Form 26AS but nobody ever claims it.
What to check before you file
Start with status, because everything downstream depends on it. Day counts decide whether you are non-resident, RNOR or resident for that financial year, and each answer changes what India can tax. Run your dates through our residency status calculator before touching any form.
Then pull three documents:
- Form 26AS — tax actually credited against your PAN.
- AIS (Annual Information Statement) — what department believes you earned, including interest and securities transactions you may have forgotten.
- Bank interest certificates for every NRO account, plus sale deed and purchase records if property changed hands.
Reconcile them. A refund claim that disagrees with AIS invites a query; a claim that matches it usually processes quietly.
Which form, and what changed for AY 2026-27
ITR-1 is closed to non-residents — portal simply blocks it. Filing route for a typical NRI is ITR-2, covering NRO interest, rent, capital gains and dividends. Where Indian business or professional income exists, ITR-3 applies instead.
One welcome change this year: Schedule AL, that asset-and-liability disclosure people dread, now applies only where total income crosses ₹1 crore. Below that threshold, it drops away.
Bank account details matter more than people expect. Refund credits to an Indian account, so at least one validated NRO or NRE account must sit on your profile with matching PAN and IFSC. A perfectly filed return with an unvalidated account simply stalls.
Timing, and why waiting costs you
Refunds carry interest under Section 244A, but only from a point that rewards early filers. File late and you lose part of that interest, and you land in a queue behind everyone else.
Late filing also removes your ability to carry forward certain losses — relevant for anyone who sold shares or property at a loss and wanted that loss set against a future gain.
There is a hard outer wall too. Once a year's window and its updated-return period close, unclaimed withholding stops being recoverable at all. Money quietly becomes government revenue.
An honest word on whether it is worth it
Sometimes it isn't. If a single savings account threw off ₹4,000 of interest and nothing was withheld, filing is optional and refund is nil.
Everything else on this page, though, is a different picture. Anyone who sold Indian property, holds a meaningful NRO balance, earns rent, or lives in a treaty country and was taxed at a domestic rate is very likely owed something — and in property cases, owed a great deal.
A single afternoon of reconciliation, once a year, against an average recovery of ₹1.26 lakh. Few pieces of admin pay that well.
If your position involves a property sale, treaty relief, or several years of unfiled returns, book a consultation and we will look at your Form 26AS and AIS together before anything is filed.
This article is general information current as of August 2026 and is not individual tax advice. Rules, rates and thresholds change; your position depends on your residency, treaty country and facts for that financial year. Please take advice on your own situation before acting.