Which account a refund can be credited to
A refund is released only to a bank account you have pre-validated on the income-tax portal, linked to your PAN and enabled for e-verification. You add it under My Profile, then My Bank Account, then validate it, and the status updates in about ten to twelve working days.
Two limits matter for an NRI. The account has to be a savings account, NRE or NRO, not an FCNR account and not an NRE fixed deposit. And it has to be active. A dormant or closed account is one of the most common reasons a refund fails and has to be reissued, so validate a live account well before the refund is processed.
Why an Indian-income refund is safest in NRO
On paper the portal accepts either an NRE or an NRO savings account. In practice, when the refund relates to Indian income, such as NRO interest or a gain on an Indian property, a refund credited to an NRE account is sometimes flagged or bounced by the bank. An NRE account is meant to hold money earned abroad, and Indian-source income does not fit that, so the safer default for this kind of refund is a pre-validated NRO account.
This is why you often hear that refunds can only go to NRO. It is not strictly true, but for Indian-source income NRO is the choice that avoids a bounce.
NRO does not mean the money is stuck
The worry that money in NRO is trapped is the part that is genuinely wrong. You can send NRO balances abroad, up to USD 1 million per financial year, under the RBI remittance-of-assets route (RBI Master Direction 13/2015-16). A tax refund sitting in NRO is part of that. Above USD 1 million in a year you need prior RBI approval, but few refunds get near that.
Money that originally came from repatriable NRE funds does not lose its repatriability just because a refund passed through NRO. It simply counts towards your USD 1 million for the year, and the transfer out needs Form 15CA and, above five lakh rupees, a chartered accountant's Form 15CB. These become Form 145 and 146 from FY 2026-27.
A worked example
Ravi, an NRI in Dubai, sells a Pune flat and the buyer over-deducts TDS. He files his return and a refund of eight lakh rupees is due, including interest under Section 244A (Section 437 from FY 2026-27) at 6% a year. He had linked his NRE account, and the bank bounced the credit because the refund was on Indian income.
He pre-validates his NRO savings account instead, the refund lands cleanly, and a few weeks later he repatriates it to Dubai within his USD 1 million limit for the year, using Form 15CA and a CA's Form 15CB. The money reaches him abroad in full, decided by one account-routing choice.