What an Independent Director Can and Cannot Be Paid

Independent Director explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

The pay structure for an independent director is designed around a single idea: you should be paid for showing up and thinking, not for the share price going up.

Everything else follows from that. Sitting fees, yes. A profit-linked commission, yes, with limits and members' approval. Stock options, never.

Sitting fees up to ₹1,00,000 per meeting under Section 197(5). Reimbursement of expenses for attending meetings. Profit-related commission approved by members, within the Section 197(1) caps of 1% of net profits (where there's a managing or whole-time director) or 3% (where there isn't). No stock options at all. Loss-making companies can now pay under Schedule V. Sitting fees attract TDS under Section 194J and GST under reverse charge.

Sitting fees

Section 197(5) allows a company to pay a director a fee for attending board or committee meetings, at a rate decided by the board.

The rules cap that fee at ₹1,00,000 per meeting. Within the cap, the board is free — and most companies set a lower figure for committee meetings than for board meetings.

Two conditions worth knowing:

• The board may set different fees for different classes of company or director.
• The sitting fee payable to an independent director or a woman director must not be less than the fee payable to other directors. You cannot pay your independent directors less than the promoter directors for the same meeting.

Sitting fees are paid per meeting attended. A director who misses meetings earns less, which is the intended incentive.

Reimbursement of expenses

Section 149(9) expressly allows reimbursement of expenses for participation in board and other meetings. Travel, accommodation and related costs for attending are reimbursable and aren't remuneration.

Schedule IV separately allows an independent director to take professional advice from outside experts at the company's expense where necessary. That's not remuneration either — it's a cost of doing the job properly, and it's chronically underused.

Profit-related commission

An independent director may receive a commission linked to profits, approved by the members.

Section 197(1) sets the ceiling. Total managerial remuneration in a public company can't exceed 11% of net profits, and within that, directors who are neither managing directors nor whole-time directors are limited to:

These caps can be exceeded with the approval of the members by special resolution. Since the 2017 amendment, Central Government approval is no longer required for that — it's a shareholder decision.

Net profits are computed under Section 198, which has its own additions and deductions and is not the same as accounting profit.

No stock options — and why

Section 149(9) states plainly that an independent director shall not be entitled to any stock option.

The reasoning is worth understanding rather than memorising. An independent director's core function is to scrutinise management's numbers and challenge decisions that flatter short-term performance. Give that person equity upside and you've given them the same incentive as the people they're supposed to be checking.

It's an absolute prohibition. There's no threshold below which it's acceptable and no approval that cures it. An ESOP grant to an independent director is void, and it also destroys their independence going forward.

Note that this is about options, not about a general ban on the director ever owning shares. But the Section 149(6) tests — the relatives' limits and the 2% voting power test — make any meaningful holding a problem in its own right.

When the company has no profits

This is the part most older material gets wrong.

Before 2021, if a company had no profits or inadequate profits, a commission wasn't available, and independent directors were limited to sitting fees. The perverse result was that companies in distress — the ones most needing strong independent oversight — had the least to offer good candidates.

The Companies (Amendment) Act, 2020, in force from March 2021, changed this. A proviso to Section 149(9), read with the amendment to Section 197(3), allows a company with no profits or inadequate profits to pay remuneration to its independent and non-executive directors in accordance with Schedule V.

Schedule V sets slab-based limits by effective capital, with conditions. If your reference source doesn't mention this route, it predates March 2021.

Tax and GST treatment

TDS. Sitting fees and commission paid to a director who is not an employee fall under Section 194J of the Income-tax Act, with TDS at 10%. There's no basic exemption threshold for director's fees under 194J — deduct from the first rupee.

GST. This one catches companies out. Services supplied by a director who is not an employee of the company — which is exactly what an independent director is — are taxable under reverse charge. The company pays the GST, not the director, and the director doesn't need to register on account of these fees.

The CBIC clarified the position in 2020: remuneration to a director that is treated as salary and subjected to TDS under Section 192 is outside GST, while payments to independent and other non-employee directors, taxed under Section 194J, attract GST under reverse charge. Independent directors sit squarely in the second category.

In the director's hands, sitting fees and commission are taxable as income from other sources, or as business or professional income depending on the facts.

Disclosure

Listed entities and public companies crossing the thresholds must disclose remuneration details in the Board's report under Section 197(12) and the associated rules — including the ratio of each director's remuneration to the median employee remuneration.

For listed entities, Regulation 17(6) adds a specific requirement: annual remuneration to a single non-executive director exceeding 50% of the total annual remuneration payable to all non-executive directors needs approval by special resolution.

Key takeaways

• ₹1,00,000 per meeting maximum sitting fee, and never less than what other directors get.
• Expenses are reimbursable, and so is outside professional advice under Schedule IV.
• Commission capped at 1% or 3% of net profits, exceeded only by special resolution.
• Stock options are absolutely prohibited.
• Loss-making companies can pay under Schedule V since March 2021.
• TDS at 10% under Section 194J, from the first rupee.
• GST applies under reverse charge — the company pays it.

Read next

• Section 149 of the Companies Act 2013, Explained Simply
• How Much Do Independent Directors Earn in India?
• Can an Independent Director Hold Shares or Get ESOPs?
• Duties of an Independent Director: Schedule IV Explained

Law stated as on 5 September 2026. Tax and GST positions summarised here are general — confirm the treatment for your facts before deducting or paying.