Last verified: March 2026
The independent director is one of the most consequential legal innovations in Indian corporate governance. Section 149(6) of the Companies Act 2013 codified what was previously a listing agreement requirement into statutory law, creating a defined class of non-executive directors with specific eligibility criteria, tenure limits, and liability protections. This guide on independent director companies act 2013 provisions examines every provision that governs independent directors, from appointment to removal, from compensation to prosecution.
All statutory references verified as of March 2026 against the Companies Act 2013, SEBI (LODR) Regulations 2015, and the Companies (Appointment and Qualification of Directors) Rules 2014 as amended.
Table of Contents
- The Legal Definition: Section 149(6) Decoded
- Mandatory Appointment: Which Companies Must Have IDs
- The IICA Databank and Proficiency Test
- The Appointment Process: A Legal Walkthrough
- Tenure, Reappointment, and Cooling-Off
- Removal, Resignation, and Vacancy
- Compensation Framework: Section 197
- Duties and the Code of Conduct
- Related Party Transactions: Oversight Responsibility
- Liability Framework: When IDs Are Prosecuted
- Committee Obligations Under SEBI LODR
- Directorship Limits
- Comparative Perspective: India, UK, and US
- Compliance Checklist: First 30 Days
- Frequently Asked Questions
The Legal Definition: Section 149(6) Decoded
Section 149(6) of the Companies Act 2013 provides the statutory definition of an independent director. Understanding the independent director companies act 2013 definition clause by clause is essential because every eligibility dispute, every disqualification challenge, and every appointment irregularity traces back to this section.
An independent director, in relation to a company, means a director other than a managing director, whole-time director, or nominee director, who satisfies six specific conditions simultaneously.
Clause (a) requires the director to be a person of integrity who possesses relevant expertise and experience. The Act deliberately does not define “integrity” or prescribe minimum qualifications. This is intentionally broad. Parliament left the determination of what constitutes relevant expertise to the Nomination and Remuneration Committee and the board, recognising that different companies need different skills. A technology company may need cybersecurity expertise while a pharmaceutical company may need regulatory affairs knowledge. Your professional track record is what matters, not a specific degree.
Clause (b) prohibits the director from being a promoter of the company or its holding, subsidiary, or associate company, and from being related to the promoters or directors. “Related” is defined under Section 2(77) and catches a wide net, including spouse, father, mother, son, daughter, son’s wife, and daughter’s husband. If your spouse’s sibling is a director of the holding company, you are disqualified.
Clause (c) bars any pecuniary relationship with the company beyond director remuneration for the current and two preceding financial years. The only exception is transactions not exceeding 10% of total income. This two-year lookback is one of the most frequently violated conditions, particularly by professionals who serve as consultants to a company before being appointed as independent directors.
Clause (d) requires that neither the director nor any of their relatives should have been a Key Managerial Personnel or employee of the company in the three financial years immediately preceding the financial year of appointment. The three-year cooling period is designed to ensure that former employees have sufficient distance from the management they will be overseeing.
Clause (e) bars the director from being a partner or employee of the company’s statutory auditor, internal auditor, cost auditor, or company secretary in practice, and from having been one in the preceding three financial years. This includes partner firms, preventing auditor-to-board revolving doors.
Clause (f) sets securities and voting power limits. The director, together with relatives, must not hold securities exceeding Rs 50 lakh face value or 2% of the total paid-up share capital, whichever is lower. Neither the director nor their relatives should hold 2% or more of the total voting power.
The interplay between these six clauses creates a comprehensive independence test that goes significantly beyond what most other jurisdictions require. A person may satisfy five of the six conditions and still be disqualified by the sixth. Courts and regulators have consistently held that Section 149(6) must be read strictly. There is no room for “substantial compliance” or “spirit of the law” arguments when independence is challenged.
The practical significance becomes apparent during enforcement proceedings. When SEBI or the NCLT examines whether an independent director was truly independent, they trace each clause methodically. In multiple SEBI adjudication orders, directors who had indirect pecuniary relationships through family members’ businesses, or who had served as consultants to group companies within the lookback period, have been found to have been incorrectly classified as independent directors. The consequence is not merely disqualification. It can invalidate board resolutions that required independent director participation, creating cascading governance problems for the company.
A corporate governance practitioner who has advised boards on over fifty independent director appointments has observed that clause (c) is the most frequently overlooked disqualification ground. Professionals who serve as consultants to a company often assume their consulting fees are distinct from the director relationship, but any pecuniary relationship beyond director remuneration that exceeds 10% of total income during the relevant period triggers disqualification. The lookback covers the current and two preceding financial years, meaning a consulting engagement that ended eighteen months ago can still prevent an independent directorship today.
For law students studying corporate governance, the evolution of Section 149(6) from the earlier Clause 49 of the Listing Agreement is instructive. The Listing Agreement version was a contractual obligation between the company and the stock exchange, enforceable only through delisting threats. The Companies Act 2013 elevated independence criteria to statutory status, making non-compliance a prosecutable offence under Section 450 (general penalty) and potentially Section 447 (fraud) in egregious cases where a person knowingly accepts appointment despite being ineligible.
Mandatory Appointment: Which Companies Must Have Independent Directors
The appointment requirement for independent directors operates on two parallel regulatory tracks that law students must understand distinctly.
The Companies Act track begins with Section 149(4), which requires every listed public company to have at least one-third of its total number of directors as independent directors. The Central Government may prescribe minimum numbers for specific classes of public companies. Rule 4 of the Companies (Appointment and Qualification of Directors) Rules 2014 extends this mandate to unlisted public companies meeting any one of three thresholds: paid-up share capital of Rs 10 crore or more, turnover of Rs 100 crore or more, or outstanding loans, debentures, and deposits in aggregate exceeding Rs 50 crore. These companies must have at least two independent directors.
The SEBI LODR track adds a more nuanced layer for listed companies. Regulation 17(1)(b) creates a conditional requirement. Where the chairperson is a non-executive director, the minimum is one-third independent directors. Where the non-executive chairperson is a promoter or related to a promoter, or where there is no regular non-executive chairperson, the minimum rises to one-half (50%) of the board. Since the majority of Indian listed companies have promoter-chairpersons, the effective requirement for most listed companies is that half their board must consist of independent directors, significantly exceeding the Companies Act minimum.
SEBI LODR Regulation 17(1)(a) adds a gender requirement: the top 1,000 listed entities by market capitalisation must have at least one woman independent director on the board. This was initially mandated for the top 500 entities from April 1, 2019, and extended to the top 1,000 from April 1, 2020.
Private companies have no mandatory requirement to appoint independent directors under either the Companies Act or SEBI regulations. However, this exemption comes with an important caveat: if a private company voluntarily appoints an independent director, all statutory obligations, including eligibility criteria, tenure limits, liability provisions, and the IICA databank requirement, apply in full. A practitioner advising private companies has noted that this creates a governance trap for companies that appoint independent directors without understanding the full compliance burden they are accepting.
The IICA Databank and Proficiency Test
Rule 6 of the Companies (Appointment and Qualification of Directors) Rules 2014 mandates that every individual appointed as an independent director must register with the Independent Directors Databank maintained by the Indian Institute of Corporate Affairs (IICA) at independentdirectorsdatabank.in.
Registration fees are structured in three tiers, all inclusive of 18% GST. The one-year plan costs Rs 5,000 plus GST, totalling Rs 5,900. The five-year plan costs Rs 15,000 plus GST, totalling Rs 17,700, which works out to Rs 3,540 per year. The lifetime plan costs Rs 25,000 plus GST, totalling Rs 29,500.
Every registered individual must pass the Online Proficiency Self-Assessment Test (OPSAT) within two years of databank registration, unless exempt. The two-year deadline was extended from one year by the Fifth Amendment Rules 2020 (G.S.R. 774(E), December 18, 2020). The passing score was simultaneously reduced from 60% to 50%.
The OPSAT represents a uniquely Indian regulatory innovation. No other major jurisdiction requires independent directors to pass a statutory proficiency test. The test was introduced based on the recommendation of a corporate governance committee which noted that many independent directors lacked basic understanding of their legal obligations, financial literacy, and governance responsibilities.
The test consists of 50 multiple-choice questions carrying 100 marks (two marks per question), with a duration of 75 minutes (90 minutes for Persons with Disabilities). There is no negative marking. Two daily time slots are available at 2:00 PM and 8:00 PM, and candidates may attempt the test unlimited times with a mandatory one-day gap between attempts. Results are immediate, with an e-certificate generated upon passing.
The syllabus is divided equally between Board Essentials (25 questions covering Companies Act 2013 sections 149 through 188, SEBI LODR Regulations, and SEBI PIT Regulations) and Board Practice (25 questions covering financial literacy, corporate governance principles, ethics, and case studies). A governance training professional who has coached candidates has observed that the most common mistake is neglecting SEBI LODR in favour of Companies Act provisions that candidates already know, and underestimating the financial literacy questions which require practical application rather than theoretical knowledge.
Rule 6(4) exempts two categories. First, Advocates, Chartered Accountants, Cost Accountants, and Company Secretaries who have been in practice for at least 10 years (as amended by G.S.R. 579(E), August 2021). Second, individuals who have served as director or KMP for at least 3 years in qualifying companies (reduced from 10 years by the Fifth Amendment Rules 2020). Government officers at Director-level or above with 3 or more years in commerce, finance, or industry ministries, and SEBI, RBI, IRDAI, or PFRDA officers at CGM-level or above with 3 or more years, are also exempt.
The Appointment Process: A Legal Walkthrough
The appointment of an independent director involves multiple statutory steps, each governed by specific provisions that create a documented chain of compliance.
The process begins with the NRC recommendation under Section 178(3), which requires the committee to formulate criteria for determining qualifications, positive attributes, and independence. For listed companies, SEBI LODR Schedule II Part D further specifies that the NRC must identify qualified persons and recommend their appointment to the board. The NRC evaluates the balance of skills, knowledge, and experience on the board and prepares a description of the role and capabilities required for the new appointment. This skills-matrix approach was designed to move board appointments away from relationship-based selection toward evidence-based governance needs.
Shareholder approval follows a nuanced framework. For first-term appointments under the Companies Act, an ordinary resolution at the general meeting suffices (Section 152). For reappointment to a second term, Section 149(10) requires a special resolution. For listed companies, SEBI LODR Regulation 25(2A), effective January 1, 2022, originally required all independent director appointments through special resolution. The Sixth Amendment Rules (November 2022) introduced an alternative for first-term appointments: approval by ordinary resolution where votes cast in favour exceed votes cast against, subject to the condition that a majority of votes cast by public shareholders must be in favour.
This dual-track system reflects the regulatory attempt to balance minority shareholder protection with practical governance needs. Understanding this nuance is essential for any lawyer advising listed companies on board composition, as the wrong resolution type can invalidate the appointment entirely.
The company issues a formal letter of appointment per Schedule IV format, and Form DIR-12 is filed with the ROC within 30 days. For listed companies, disclosure to the stock exchange must happen within 24 hours under SEBI LODR Regulation 30.
Tenure, Reappointment, and Cooling-Off
Section 149(10) allows a maximum first term of up to five consecutive years. The statute uses “up to five” rather than a fixed five-year term, meaning the actual appointment may be for fewer years. Reappointment for a second term of up to five years is possible but requires a special resolution passed by shareholders, also under Section 149(10).
Section 149(11) imposes the two-term maximum and cooling-off requirement. No independent director shall hold office for more than two consecutive terms. After the expiry of the second term, the director is eligible for appointment only after the expiration of three years of ceasing to be an independent director. During this three-year cooling-off period, the person shall not be appointed in or be associated with the company in any capacity, directly or indirectly.
Section 149(13) provides that independent directors are not subject to retirement by rotation under Section 152(6), giving them tenure security for the duration of their term. This protection ensures that promoter-dominated boards cannot use the rotation mechanism to effectively remove independent directors before their term expires.
Removal, Resignation, and Vacancy
The removal and resignation framework operates on two parallel tracks that create different levels of protection depending on whether the company is listed or unlisted.
Under Section 169, any director including an independent director can be removed by ordinary resolution at a general meeting, provided that special notice of 14 days is given. The director has the right to be heard at the meeting and to make written representations that must be circulated to shareholders. For listed companies, SEBI LODR Regulation 25(2A) significantly strengthens this protection by requiring a special resolution for removal. The 75% threshold makes it substantially harder for promoter-shareholders to remove independent directors who ask uncomfortable questions, as compared to the simple majority required for an ordinary resolution.
The resignation process under Section 168 allows a director to resign by giving notice in writing. The resignation takes effect from the date the notice is received or from a future date specified in the notice, whichever is later. The company must file Form DIR-12 with the ROC within 30 days. The resigning director may optionally file Form DIR-11 with reasons (this filing became optional after the 2018 amendment, but practitioners strongly recommend it as a contemporaneous defence record).
A governance advisory professional has observed that resignation timing creates a difficult dilemma during regulatory investigations. Resignation too early may be interpreted as abandonment of fiduciary duty, while resignation too late creates the appearance of complicity. The advised approach is to document concerns in writing to the board, allow reasonable time for response, and if unresolved, resign with a detailed DIR-11 filing establishing the chronology.
Compensation Framework: Section 197 and Rules
Sitting fees are capped at Rs 1,00,000 per meeting of the Board or committee thereof under Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014. This is a single uniform cap applying to all meetings. Median compensation at Nifty-50 companies reached Rs 87.4 lakh in FY24, representing 106% growth since FY19 (Exec-Rem Advisors study, Business Standard, August 2024).
Section 197(1) caps commission payable to independent directors at 1% of net profits if the company has a Managing Director, Whole-Time Director, or Manager, or 3% if it does not. Overall total managerial remuneration must not exceed 11% of net profits.
Section 197(7A), inserted by the Companies (Amendment) Act 2017, explicitly prohibits the grant of stock options to independent directors to preserve their independence from equity-linked incentives.
When a company has inadequate profits or no profits, Section 197 read with Schedule V prescribes maximum remuneration brackets based on effective capital. For companies with effective capital up to Rs 5 crore, the maximum is Rs 60 lakh per year. Between Rs 5 crore and Rs 100 crore, it is Rs 84 lakh. Between Rs 100 crore and Rs 250 crore, Rs 120 lakh. Above Rs 250 crore, Rs 120 lakh plus 0.01% of effective capital exceeding Rs 250 crore. These brackets constrain the total managerial remuneration pool from which independent director commission is drawn.
For listed companies, SEBI LODR Regulation 17(6) requires disclosure of criteria for payments to non-executive directors in the annual report. The NRC under Section 178 must formulate a remuneration policy covering sitting fees and commission criteria, disclosed on the company website and in the annual report. A practising company secretary who advises listed companies has noted that well-drafted policies typically link commission to attendance records, committee chairmanship responsibilities, and specific contributions rather than applying a flat percentage.
Independent director fees are taxed as “Income from Business or Profession” under Section 28 of the Income Tax Act. TDS is deducted at 10% under Section 194J (not Section 192, which applies to salary). If total fees exceed Rs 20 lakh per year, GST registration is mandatory. GST at 18% applies under the Reverse Charge Mechanism.
Duties and the Code of Conduct
All directors, including independent directors, are bound by the duties prescribed under Section 166. These include acting in accordance with the articles (Section 166(1)), acting in good faith for the benefit of members, employees, shareholders, community, and environment (Section 166(2)), exercising due and reasonable care, skill, and diligence (Section 166(3)), avoiding conflicts of interest (Section 166(4)), and not achieving undue gain or advantage (Section 166(5)).
Section 149(8) mandates that every independent director comply with Schedule IV, the Code for Independent Directors. The Code covers professional conduct (upholding ethical standards, acting objectively), role and functions (bringing independent judgement on strategy, performance, risk management), and a mandate for at least one separate meeting per year of independent directors without non-independent directors and management. This separate meeting, unique to the Indian framework, allows independent directors to review the performance of non-independent directors, assess information quality, and evaluate the board-management relationship without management presence.
Related Party Transactions: The Oversight Responsibility
Section 188 governs related party transactions, and independent directors bear a particularly important oversight role. Every related party transaction exceeding prescribed thresholds requires Audit Committee approval. For material transactions exceeding SEBI LODR Regulation 23 thresholds, prior shareholder approval through ordinary resolution is required, with related parties abstaining from voting.
The Audit Committee’s role is central to independent director liability in this area. SEBI LODR Regulation 23(2) requires prior Audit Committee approval for all related party transactions regardless of materiality. The committee must verify arm’s length pricing and ordinary course of business. For independent directors serving on the Audit Committee, this creates a direct nexus of knowledge under Section 149(12). If a related party transaction later proves detrimental to minority shareholders, Audit Committee members who approved it cannot claim ignorance through board processes.
The IL&FS proceedings established that Audit Committee independent directors who approved loans to entities already in default bore heightened responsibility because default information was available through committee processes. This precedent reinforces that committee-level liability under Section 149(12) is measured at a higher standard than general board-level liability.
Liability Framework: When Independent Directors Are Prosecuted
Section 149(12) is the most important provision for any independent director to understand. It is a non-obstante provision creating a four-limb test. An independent director is liable only for acts of omission or commission that occurred with their knowledge, are attributable through board processes, involved their consent or connivance, or occurred because they failed to act diligently.
This creates a statutory safe harbour not available to executive directors. If a director can demonstrate diligent attendance, reading of board papers, active questioning, and recording of dissent under Section 118, Section 149(12) provides substantial protection.
A former member of a regulatory enforcement team has shared an important observation about how Section 149(12) operates in practice. The provision creates a rebuttable presumption of non-liability, but the burden shifts to the director to demonstrate diligence when enforcement proceedings are initiated. Directors who maintain a personal file of all board papers, notes, questions raised, and dissent recorded have a significantly stronger defence than those who rely solely on company-maintained minutes.
The Satyam scandal (2009) involved falsification of accounts to the extent of Rs 7,000 crore. The independent directors failed in their most basic oversight function: they never questioned why the company reported massive cash reserves that did not actually exist. SEBI imposed penalties and the case became the primary catalyst for the independent director provisions in the Companies Act 2013. The case also led to mandatory auditor rotation under Section 139(2) and stricter related party transaction disclosure requirements under Section 188. The lesson for law students is clear: passive attendance is not due diligence.
The IL&FS crisis (2018) pushed the liability analysis further. The NCLT, by its order dated October 1, 2018, suspended the entire board and reconstituted it under government-appointed directors. Independent directors on the Audit Committee were specifically implicated for being aware that loans were being granted to already-defaulting borrowers. The NCLT restrained former directors from alienating personal assets. In December 2025, IL&FS initiated proceedings to recover Rs 187 crore in excess remuneration from former directors. The IL&FS case established that Audit Committee members bear a higher standard of scrutiny than main board members, because committee membership creates a presumption of deeper knowledge about matters within that committee’s purview.
Committee Obligations Under SEBI LODR
ID Committee Requirements
Audit Committee
Reg 18 • ≥2/3 IDs • All financially literate • ID chair • 1 with accounting expertise
NRC
Reg 19 • ≥2/3 non-exec • ID chair • S.178(3) criteria
Stakeholders RC
Reg 20 • ≥1 ID • Non-exec chair
Risk Management
Reg 21 • ≥2 IDs (top 1,000) • CSCRF 2024
Independent directors carry specific mandatory obligations on statutory committees under SEBI LODR. The Audit Committee under Regulation 18 requires at least two-thirds of members to be independent directors, all members must be financially literate, at least one must have accounting or financial management expertise, and the chairperson must be an independent director. The NRC under Regulation 19 requires at least two-thirds non-executive directors, with an independent director as chairperson. The Stakeholders Relationship Committee under Regulation 20 must include at least one independent director with a non-executive chairperson. The Risk Management Committee under Regulation 21, applicable to the top 1,000 listed entities, must include at least two independent directors.
Directorship Limits
Section 165 caps total directorships at 20, with a maximum of 10 in public companies. SEBI LODR Regulation 17A limits independent directorships in listed entities to 7, reducing to 3 if the person also serves as a whole-time director or managing director in any listed entity.
Comparative Perspective: India, UK, and US
India uses a prescriptive, statute-based approach with codified eligibility criteria in Section 149(6), a mandatory proficiency test (OPSAT), and a statutory liability shield under Section 149(12). The UK Corporate Governance Code 2024 operates on a “comply or explain” basis, recommending at least half the board (excluding the chair) as independent non-executive directors, with a 9-year tenure recommendation after which independence must be specifically justified. Board discretion to determine independence is significantly broader. The US relies on exchange-specific listing rules (NYSE and NASDAQ have different independence definitions) supplemented by the Sarbanes-Oxley Act of 2002, with the business judgement rule providing common law protection.
The comparative analysis reveals a fundamental philosophical difference. India’s prescriptive approach reflects a regulatory philosophy shaped by governance failures like Satyam and IL&FS, where board self-regulation proved insufficient. The UK trusts boards to exercise judgement and justify departures. The US falls between the two. For Indian companies with cross-border operations or dual listings, understanding these differences is essential because independent directors may need to satisfy multiple governance frameworks simultaneously. India is the only major jurisdiction requiring a mandatory proficiency test for independent directors.
Compliance Checklist: First 30 Days After Appointment
The first thirty days after appointment establish the foundation for your entire tenure. This period is not merely administrative. It is when you build the knowledge base, relationships, and compliance infrastructure that determine how effectively you can perform the oversight role the law expects. Experienced independent directors recommend treating the first month as an intensive due diligence exercise on the company you have just joined.
In the first three days, sign the letter of appointment per Schedule IV, file Form DIR-2 (consent to act) and DIR-8 (declaration under Section 164 of non-disqualification) with the company, submit Form MBP-1 (disclosure of interest under Section 184, an internal board record not filed with ROC), and verify your DIN is active on the MCA portal.
During the first week, the company files Form DIR-12 with ROC (within 30 days). For listed companies, stock exchange disclosure must happen within 24 hours under Regulation 30. Register or confirm IICA databank membership and acknowledge the insider trading code with trading window restrictions.
In weeks two through four, review the last four quarters of board papers, study the related party transactions register line by line (Section 188), review the vigil mechanism and whistleblower policy (Section 177(9) and (10)), meet the Company Secretary, CFO, statutory auditor, fellow independent directors, and internal auditor. Prepare for your first board meeting with at least three to five substantive questions. Confirm committee assignments and set up your compliance calendar for the year.
Disclaimer: This article is for informational and educational purposes only and does not constitute legal advice. Laws, rules, and procedures are subject to change. For advice specific to your situation, consult a qualified legal professional. Information is current as of March 2026.
Frequently Asked Questions
What is the statutory definition of an independent director in India?
Section 149(6) of the Companies Act 2013 defines an independent director as a non-executive director who is a person of integrity with relevant expertise, has no promoter connection, no pecuniary relationship beyond remuneration, no recent employment with the company, no auditor connection, and whose securities and voting power fall below prescribed thresholds. All six clauses must be satisfied simultaneously.
Which companies are legally required to appoint independent directors?
Every listed public company must have at least one-third independent directors under Section 149(4). SEBI LODR Regulation 17(1)(b) increases this to 50% when the chairperson is a promoter. Unlisted public companies with paid-up capital of Rs 10 crore or more, turnover of Rs 100 crore or more, or aggregate loans exceeding Rs 50 crore must have at least two independent directors under Rule 4.
What is the maximum tenure for an independent director?
Section 149(10) allows a maximum of two consecutive terms of five years each, totalling 10 years. After completing two terms, Section 149(11) mandates a three-year cooling-off period before reappointment to the same company.
What protection does Section 149(12) provide to independent directors?
Section 149(12) limits liability to acts of omission or commission that occurred with the director’s knowledge, are attributable through board processes, involved their consent or connivance, or where they failed to act diligently. This creates a statutory safe harbour not available to executive directors.
How did the Satyam and IL&FS cases impact independent director liability?
Satyam (2009) exposed the failure of independent directors to question falsified financial statements, leading to SEBI enforcement and the codification of independent director provisions in the Companies Act 2013. IL&FS (2018) demonstrated that Audit Committee independent directors aware of governance failures could face NCLT proceedings, asset freezes, and remuneration recovery actions. IL&FS established that committee membership creates a presumption of deeper knowledge.
Is the IICA proficiency test mandatory for all independent directors?
Yes, unless exempt under Rule 6(4). Professionals with 10 or more years of practice (advocates, CAs, cost accountants, company secretaries) and directors or KMPs with 3 or more years in qualifying companies are exempt. All others must pass the OPSAT within two years of databank registration.
Can an independent director be removed before completing their term?
Under Section 169, removal is by ordinary resolution with 14 days special notice. For listed companies, SEBI LODR Regulation 25(2A) requires a special resolution, providing significantly stronger protection against arbitrary removal.
How does India’s independent director framework compare with the UK and US?
India uses a prescriptive statute-based approach with codified eligibility criteria, mandatory proficiency testing, and a statutory liability shield under Section 149(12). The UK Corporate Governance Code operates on a “comply or explain” basis with board discretion and a 9-year tenure recommendation. The US relies on exchange-specific rules supplemented by the Sarbanes-Oxley Act. India is the most prescriptive of the three.
What is the tax treatment of independent director income?
Fees are taxed as “Income from Business or Profession” under Section 28 of the Income Tax Act. TDS at 10% under Section 194J. GST at 18% under Reverse Charge Mechanism if total fees exceed Rs 20 lakh per year.
What committees must independent directors serve on?
Under SEBI LODR, independent directors must constitute at least two-thirds of the Audit Committee (Regulation 18), serve on the NRC where the chairperson must be an independent director (Regulation 19), serve on the Stakeholders Relationship Committee (Regulation 20), and for top 1,000 entities, at least two independent directors must serve on the Risk Management Committee (Regulation 21).
