Authority for Advance Rulings has ruled that the revenue earned by foreign firms by referring business clients to domestic companies is not taxable in India.

The Indian companies paying referral fees will also "not be required to withhold any tax under the Income-Tax Act while making remittances" to overseas companies, said the Authority for Advance Rulings in a reference made by Singapore-based real estate consultant Cushman and Wakefield.

The AAR ruling will have implications for various firms in sectors like chartered accountancy and law which pay referral fees to overseas clients.

"The receipt on account of the referral fee arising to the applicant (Cushman & Wakefield Pte, Singapore) would not be taxable in India...", the AAR said, while disposing of the application by the Singapore-based real estate consultancy company.

The Singapore-based company wanted to know from AAR whether the referral fees received from group's Indian outfit Cushman & Wakefield, India would be subject to tax in India and whether the provisions of withholding tax would apply.

The AAR while giving its ruling in favour of the foreign company said that the referral fees cannot be taxed in India as the such payments do not fall within the purview of either business income, royalty income or fees for technical services.