Faster ITR Refunds in 2026: What the 17-Day Number Really Means for NRIs Who File Only to Reclaim Over-Withheld TDS

A Dubai-based reader filed his ITR-2 for AY 2025-26 in August, purely to reclaim Rs 1,40,000 of TDS his bank had cut on NRO fixed-deposit interest at 30% plus surcharge and cess. He had read the headlines that the income tax department now turns refunds around in 17 days. His refund landed in February, six months later, and Rs 11,000 of an outstanding demand from AY 2022-23 he had forgotten about was quietly set off against it under Section 245. The 17-day number was not a lie. It just was never describing his return.

The 30-second answer: The income tax department's average ITR processing time has fallen to about 17 days for AY 2025-26, from 93 days in 2013, driven by automation, AIS and Form 26AS pre-fill, and AI-led scrutiny. But that average covers simple ITR-1 and ITR-4 salaried returns. An NRI filing ITR-2 to reclaim over-withheld TDS is a slower category, often weeks to months, and the delay you can actually control is bank-account pre-validation: refunds credit only to a pre-validated NRO account, never NRE. Before paying you, the department can adjust your refund against old demand under Section 245 (you get 30 days to respond), and it pays 244A interest at 0.5% a month on the delay, with carve-outs where the holdup is yours or the refund is withheld under Section 245(2) pending assessment.

This is a news-analysis piece, so it dates quickly. The facts here are current to early 2026, covering AY 2025-26 returns and the run-up to AY 2026-27 filing. If you file only to get money back, which describes most NRIs whose Indian income is interest, rent or capital gains already taxed at source, this guide is about the gap between the press-release speed and your actual experience, and the four or five things that decide which side of that gap you land on. For the mechanics of why your TDS was over-withheld in the first place, read TDS for NRIs and how to claim refunds; this guide picks up after the return is filed.

The 17-day figure is real, and it is not about you

Start with what actually improved, because it is genuine. The income tax department has compressed average processing from 93 days in 2013 to around 17 days for AY 2025-26, with the cleanest returns clearing in roughly 10 days. The machinery behind that is worth understanding because it tells you which returns get the fast lane. Returns are now substantially pre-filled from Form 26AS and the Annual Information Statement (AIS), the Centralised Processing Centre matches your claimed TDS against what deductors reported, and an AI layer flags anomalies, high-value refunds, and the bogus-deduction patterns the department spent 2024 and 2025 cracking down on. When everything reconciles automatically, a refund can be issued in days.

Here is the part the headline omits. That 17 days is an average dominated by ITR-1 (salary, one house property, interest) and ITR-4 (presumptive business), which are the high-volume, low-complexity forms. A non-resident cannot file ITR-1 at all. Your return is ITR-2 (or ITR-3 if you have business income), which carries the residential-status schedule, the capital-gains schedule, often the Schedule FSI and FA disclosures, and frequently a DTAA claim. More schedules mean more to verify, and ITR-2 and ITR-3 are openly acknowledged to process slower. So the relevant benchmark for an NRI is not 17 days. It is "several weeks in a clean year, a few months in a busy one," and for AY 2025-26 specifically there was a visible backlog, with over 27 lakh verified returns still unprocessed well into the year and many refunds crossing the 90-day mark.

The practical consequence: do not plan your cash flow around 17 days. If you are remitting the refund onward or it matters for a liquidity event, assume eight to twelve weeks from e-verification for an NRI refund return in a normal year, and longer if your claim is large or your return touches anything the AI flags, which for NRIs usually means a sizeable DTAA relief claim or a property-sale capital gain.

The delay you actually control is the bank account, not the queue

If you take one thing from this guide, take this: the most common reason an NRI's refund is late is not the department's queue. It is that the refund was processed, approved, and then failed to credit because the nominated bank account was not validly pre-validated. The department's system marks it "refund failure" or "refund returned," and the money sits in limbo until you fix the account and raise a reissue request. This failure is entirely on the filer's side, it adds weeks or months, and it is avoidable before you ever file.

The rules that trip NRIs up are specific. Refunds credit only to a pre-validated bank account that is enabled for refund, and for a non-resident that account must be an NRO account. An NRE account cannot receive an income tax refund; the portal will reject it as an invalid account type, because the refund is Indian-source rupee income and belongs in the ordinary, non-repatriable-by-default channel. Pre-validation then has to clear several exact matches: the name on your PAN must match the name on the bank account, the IFSC must be live (branch mergers across PSU banks have orphaned thousands of old IFSCs), and the mobile number and email on the bank record should match your e-filing profile, because validation and EVC often run through them.

There is a quieter killer behind all of this. If you never updated your residency status to non-resident on the portal and you do not hold or have not linked Aadhaar, your PAN can be marked inoperative. An inoperative PAN means refunds are not issued, any 244A interest is forfeited for that period, and TDS on your Indian income is cut at the higher penal rate going forward. Aadhaar-PAN linking is not mandatory for NRIs, but the flip side is that you must affirmatively flag yourself as non-resident on the portal so the system does not treat your unlinked PAN as a defaulting resident's. NRIs without Aadhaar have repeatedly hit "Access Denied" and e-verification errors when adding a bank account, and the route around it is to validate via net-banking EVC or a bank-side verification rather than Aadhaar OTP.

Put real numbers on what this costs. Take Anand, a UK-resident NRI, owed a refund of Rs 1,40,000 on over-withheld NRO interest TDS for AY 2025-26. He filed and e-verified on 10 August 2025. CPC processed and approved the refund on 5 September 2025, well inside the fast window. But his nominated NRO account had an old IFSC from a pre-merger branch, so the credit bounced on 9 September as a refund failure. He noticed only in November when the money had not arrived, re-validated the account, waited the few days for validation to confirm, and raised a Refund Reissue request on 20 November. The money finally landed on 8 December 2025. The department did its part in 26 days. The bank-validation gap added three months. Had he pre-validated and test-confirmed the NRO account in July, before filing, the refund would have hit the same account on the September date.

The counterfactual is the whole lesson. The fix costs nothing and takes one afternoon: log in, go to My Profile, My Bank Account, add the NRO account, pre-validate it, and confirm it shows "Validated" and "Nominated for refund" before you file, not after. If validation is stuck "in progress" for more than a week, that is itself the signal to fix the name or IFSC mismatch now rather than discover it in November.

Section 245: the department can take old demand out of your refund first

Before any refund reaches you, the system checks whether you owe anything from prior years, and if you do, it can adjust the refund against that demand under Section 245. For NRIs this matters more than for residents, because old, half-forgotten demands are common: a mismatched TDS credit from years ago, a small self-assessment shortfall, an intimation you never saw because it went to an Indian email or address you stopped checking after moving abroad.

The procedure has a hard rule in your favour. The department must issue an intimation under Section 245 before adjusting, and you get a window, generally 30 days, to respond on the portal: agree, disagree, or say the demand is already paid or under dispute. If you do not respond within those 30 days, silence is treated as consent and the set-off goes through against whatever demand stands on that date. This is exactly the trap for an NRI who is not watching the portal. The intimation lands as a "Pending Action," the 30-day clock runs while you are nine time zones away, and the adjustment happens by default. From AY 2025-26 the process is more transparent, with the full status visible under Pending Actions and Response to Outstanding Demand on the e-filing portal, but transparency only helps if you are looking.

Note the structural change behind this. The Finance Act 2023 folded the old Section 241A into Section 245, so the same section now governs both set-off of refunds against demand (245(1)) and withholding of refunds while an assessment or reassessment is pending (245(2)). The withholding power bites on larger cases: under CBDT Instruction No. 02/2023, refunds of Rs 10 lakh or more can be examined for withholding, and the Assessing Officer needs written reasons and the Principal Commissioner's approval to hold a refund where releasing it might prejudice revenue. From 1 October 2024, the period over which a refund can be withheld was extended to sixty days after the assessment is completed. For most NRIs reclaiming a five- or six-figure TDS refund, 245(2) withholding is unlikely; it is the large property-sale or high-value-gain refunds that get caught.

Here is how the set-off plays out in numbers. Priya, a US-resident NRI, files for AY 2025-26 and is owed Rs 2,10,000 on over-withheld TDS across NRO interest and a small equity gain. The portal shows a Section 245 intimation flagging an outstanding demand of Rs 18,000 from AY 2021-22, a TDS-mismatch demand she had never actioned. She has two genuine paths. If the demand is real, she lets it stand; the department sets off Rs 18,000 and refunds Rs 1,92,000, and she stops the demand accruing further interest. If the demand is wrong, say the TDS was always reflected correctly and the demand is a system error, she must file a "Disagree with demand" response within the 30-day window, attach the proof, and the refund is held only on the disputed slice while CPC verifies. The expensive mistake is the third path: ignoring it. Do nothing, and the Rs 18,000 is adjusted automatically even if the demand was wrong, and clawing it back afterwards means a rectification or grievance that can take longer than the original refund. For an NRI, the takeaway is to clear the Response to Outstanding Demand tab before you even file, so there is no stale demand waiting to ambush the refund.

Section 244A interest: the government pays you for the wait, with two catches

When your refund is delayed, the department owes you interest under Section 244A, and this is money NRIs routinely leave on the table by not checking that it was paid. The rate is 0.5% per month or part of a month, which is 6% a year, simple interest, computed on the refund of excess TDS, advance tax or self-assessment tax. For a TDS refund where you filed your return on time, interest runs from 1 April of the assessment year to the date the refund is granted. There is a threshold: interest is payable only if the refund is at least 10% of your total tax liability, and the rate did not change under the proposals around the Income Tax Bill 2025, so 0.5% a month remains the figure for AY 2025-26 and AY 2026-27.

There is even a second tier most filers never see. If the department passes a refund order but then does not actually pay within three months from the end of the month in which the order was made, an additional 3% per annum is payable for the period beyond those three months. That comes into play exactly in the bank-failure scenario, where a refund is "granted" on paper but stuck because of a reissue, though as we will see, the catch below often neutralises it for NRIs.

The two catches are where NRIs lose this interest. First, if the delay is attributable to you, that period is excluded from the interest calculation. The clearest example is the bank-validation failure: if your refund could not credit for three months because your NRO account was not validated, the department can, and often does, decline to pay 244A interest for the period the failure was on your side. So the bank-account sloppiness that delays your refund can also cost you the compensation for that delay, a double penalty. Second, where a refund is withheld under Section 245(2) pending assessment, no 244A interest accrues for the withheld period. The statute explicitly stops the interest clock while a refund is legitimately held back for assessment. So a large refund parked under 245(2) does not quietly earn you 6% in the background; it simply waits, interest-free, until the assessment concludes.

The arithmetic is worth seeing because the numbers are not trivial on a real refund. Take Ravi, a Canada-resident NRI, owed Rs 3,00,000 of over-withheld NRO-interest TDS for AY 2025-26. He filed on time, the refund was granted on 15 January 2026, and his NRO account was properly pre-validated, so none of the delay was his fault. Interest under 244A runs from 1 April 2025 to January 2026, which is ten months (April through January, each part-month counted as a full month). At 0.5% a month on Rs 3,00,000, that is Rs 1,500 per month times 10 = Rs 15,000 of interest, paid on top of the refund, so he receives Rs 3,15,000. Now the counterfactual that shows the cost of the bank failure: had his account not been validated until November, and the department excluded the April-to-November window as attributable to him, his interest would run only over the genuinely-departmental delay, perhaps two months, Rs 3,000 instead of Rs 15,000, a Rs 12,000 hit purely from not pre-validating the account. The interest itself is taxable in the year you receive it, as "income from other sources," and shows up in your next AIS, so report it; it is a small amount but the department reconciles it.

What changes for AY 2026-27, and the move to make now

For the filing season now opening, the structural picture for an NRI refund-filer is: faster on paper, unchanged in the levers that decide your actual timeline. The automation and AIS pre-fill that drove the 17-day average continue and will likely tighten further, the 244A rate stays at 0.5% a month, and the Section 245 set-off and 30-day response window are unchanged. The single forward-looking nudge worth acting on is that AI-led scrutiny is getting more aggressive on refund claims, so a clean, fully-reconciled return matters more than ever: claim only the TDS that actually appears in your Form 26AS and AIS, because a claim that exceeds what deductors reported is the fastest way to drop out of the fast lane into manual review. If your bank cut TDS but it is not showing in 26AS, chase the bank to file the correction before you file, not after. The reconciliation discipline is covered in Form 26AS and AIS for NRIs.

Edge cases

You changed your NRO bank after filing. If you closed or switched the NRO account between filing and the refund being issued, the credit will fail even if the old account was validated. Add and pre-validate the new NRO account, wait for "Nominated for refund," and raise a Refund Reissue request. The reissue is the standard remedy for any failed credit and does not require re-filing the return.

You are owed a refund but also have a demand under genuine dispute. Filing a "Disagree with demand" response under Section 245 holds the set-off on the disputed amount, but it does not by itself release the refund instantly; CPC still verifies. If the demand is plainly a TDS-mismatch error, fixing the mismatch (often a deductor correction) is faster than arguing the demand.

The refund is large and your case is under assessment or reassessment. A refund of Rs 10 lakh or more can be examined for withholding under Section 245(2), and if withheld, no 244A interest accrues for that period. This is the realm of big property-sale or high-gain refunds. There is little to do but ensure the underlying claim is airtight; a clean DTAA file and a lower-deduction certificate obtained before the sale reduce the refund size and the scrutiny in the first place. See reducing NRO TDS using the DTAA.

Your PAN went inoperative. If you never updated residency status and your unlinked PAN is flagged inoperative, refunds and the associated 244A interest are not released, full stop, and TDS is being cut at the penal higher rate. Update your status to non-resident on the portal; that is the unlock, and it is more urgent than the refund itself because it is also costing you fresh over-withholding on NRO interest.

The closing read

The honest read is that "17-day refunds" is a true statistic about a population you are not in. The department's processing genuinely got fast, but the speed lives in ITR-1 and ITR-4 territory, and an NRI filing ITR-2 to claw back over-withheld TDS lands in a slower lane that, for AY 2025-26, was visibly congested. The good news is that the delay you most often suffer is the one you fully control. So for the common NRI refund-filer, the recommendation is concrete and it is not "be patient": pre-validate your NRO account, and test that it shows "Validated" and "Nominated for refund," before you file, never after, because that one step removes the most frequent multi-month delay and protects your 244A interest at the same time. Then clear the Response to Outstanding Demand tab before filing so no stale demand ambushes the refund under Section 245, file a return that claims only the TDS actually sitting in your 26AS and AIS so you stay in the automated lane, and after filing, watch Pending Actions for any Section 245 intimation and respond inside 30 days rather than letting silence become consent. The exception is the large refund-filer, the property seller or high-value-gain case above Rs 10 lakh: there the right move is upstream, a Section 197 lower-deduction certificate and a clean DTAA file before the transaction, so the refund, the scrutiny, and the 245(2) withholding risk all shrink before they ever arise. For anything large or contested, this is the point to pay a CA, not to rely on a blog, this one included.

Related guides

• TDS for NRIs and how to claim refunds
• ITR filing for NRIs: AY 2026-27 master guide
• Form 26AS and AIS for NRIs
• Reduce NRO TDS using the DTAA
• Tax on NRO interest
• Capital gains tax for NRIs on shares and mutual funds
• All News and analysis
• All Taxation guides
• All Banking guides

This guide is educational and general in nature, and it is news-analysis dated to early 2026, so figures such as average processing times, backlogs and procedural windows change with each filing season. It is not individual tax advice. Refund timelines, Section 245 adjustments and 244A interest depend on your exact return, residency, account validation and the department's processing in your year, so confirm your specific position on the e-filing portal and with a qualified chartered accountant.