Norms Eased for Independent Directors: The Rules That Apply in 2026

The easing of December 2020 still holds. A would-be independent director has two years to pass the IICA proficiency test, the pass mark is 50%, and three years on a qualifying board can earn an exemption. Since then SEBI has made listed-company appointments harder, and a 2026 Bill proposes stricter independence tests. Here are the rules in force, tested against two real boards.

What the December 2020 change eased

On 18 December 2020 the Ministry of Corporate Affairs (MCA) amended the Companies (Appointment and Qualification of Directors) Rules, 2014^[1]. The change applied to the online proficiency self-assessment test, which anyone in the independent directors' databank must pass unless exempt.

Three things moved. The time to pass went from one year to two years after entering the databank. The pass mark fell from 60% to 50%. And the experience needed for an exemption dropped from ten years to three^[1].

That exemption covers people with at least three years in total as a director or key managerial personnel (KMP). The service must be in a listed company, or in an unlisted public company with paid-up capital of ₹10 crore or more^[1][2]. Some foreign listed companies and statutory corporations also count^[1]. Government officers at Director level or above are exempt too if they have relevant experience. So are officers of Chief General Manager rank or above at SEBI, RBI, IRDAI or PFRDA^[2].

Two later changes widened the door. Advocates, chartered accountants, cost accountants and company secretaries with at least ten years of practice no longer need to sit the test^[2]. And a person who misses the two-year window can now pay ₹1,000 plus GST for a one-year extension, instead of starting over^[2].

The databank and the test at a glance

For a candidate, the test is no longer the main hurdle. The real filter is the board's own search, and the shareholder vote that follows in a listed company.

Which companies must appoint independent directors

Section 149(4) of the Companies Act, 2013 requires every listed public company to have at least one-third of its directors as independent directors, with fractions rounded up^[4]. Rule 4 extends the duty to unlisted public companies. Any public company with paid-up capital of ₹10 crore, turnover of ₹100 crore, or loans, debentures and deposits above ₹50 crore needs at least two^[5].

Joint ventures, wholly owned subsidiaries and dormant companies are left out^[5]. A company that stays below all three limits for three straight years can stop complying until it crosses one again^[5]. Private companies are outside the rule altogether.

Who counts as independent

An independent director is a non-executive director who is not a managing, whole-time or nominee director^[4]. Section 149(6) bars promoters and their relatives. It also bars people with material money ties to the company, and those who were recently its employees, auditors or advisers^[4]. A person holding 2% or more of the voting power, alone or with relatives, does not qualify^[4].

SEBI adds its own tests for listed companies. A key managerial person or employee of the company, or of any promoter-group company, in the three previous financial years cannot be appointed^[6]. An independent director who resigns must wait a year before joining the same group as an executive or whole-time director^[6].

Every independent director must declare independence at the first board meeting attended, at the first meeting of each financial year, and whenever circumstances change^[4][6]. Under SEBI rules, the board must then check that declaration before taking it on record^[6].

Terms, pay and seat limits

An independent director serves terms of up to five consecutive years. Reappointment needs a special resolution^[4]. No one may serve more than two terms in a row. After that comes a three-year gap, during which the person cannot be linked to the company in any other role^[4].

Pay is restricted. An independent director cannot hold stock options. Sitting fees, expenses and profit-linked commission approved by shareholders are allowed^[4]. Since 18 March 2021, a company with no profits or thin profits can still pay non-executive and independent directors within Schedule V limits^[7]:

Seats are capped too. Under SEBI's Regulation 17A, a person can be an independent director of no more than seven listed entities. Someone who is a whole-time director or managing director of a listed entity can hold only three such seats^[6]. Seats on high value debt listed entities count towards these limits as well^[6].

Age is a test too. A non-executive director aged 75 or more needs a special resolution to be appointed or to continue^[6].

SEBI's extra rules for listed companies

SEBI's Listing Obligations and Disclosure Requirements (LODR) Regulations, last amended on 14 July 2026, go further than the Act^[6]. The share of independent directors depends on who chairs the board.

With a non-executive chair, one-third is enough. Without a regular non-executive chair, at least half the board must be independent^[6]. Half is also needed when the non-executive chair is a promoter or related to one^[6].

Appointment, reappointment and removal of an independent director need a special resolution, a rule in force from 1 January 2022^[6]. From 14 November 2022 a fallback applies. If the special resolution fails but more votes are cast for it than against, and public shareholders also vote more for than against, the appointment stands^[6].

Timelines are tight. Shareholders must approve a board appointment at the next general meeting or within three months, whichever is earlier^[6]. Any vacancy on the board must be filled within three months^[6].

Independent directors must also meet at least once a financial year without management^[6]. The top 1,000 listed companies by market value must buy directors and officers (D&O) insurance for them^[6].

Two listed boards, read against the rules

Infosys has a non-executive chairman, Nandan Nilekani, who is a promoter and not independent. As a promoter-chaired company it needs at least half its board independent^[8][6]. Its Form 20-F says the board had ten members on 15 June 2026, of whom eight were independent^[8].

A month later the tenure cap removed one. Michael Gibbs completed his second consecutive term and retired from the board on 12 July 2026^[9]. That left nine directors, seven of them independent, or 78%. The Company Check's records also show nine board members^[10].

The lead independent director, D. Sundaram, is next. He joined the board on 14 July 2017, according to The Company Check's records^[10]. His second term began on 14 July 2022 and ends on 13 July 2027^[8]. After that he cannot be reappointed as an independent director at Infosys for three years^[4].

New seats follow the special-resolution route. Infosys announced on 18 April 2026 that Diane Enberg Jurgens would join as an additional and independent director for three years from 22 April 2026, subject to shareholder approval^[11]. On the same day it put Helene Auriol Potier up for a second five-year term, to 25 May 2031^[11].

Reliance Industries is the opposite case. Mukesh Ambani is both chairperson and managing director, so the half-independent rule applies^[12][6]. Its governance filing for the quarter to 30 June 2026 lists 14 directors, of whom seven are independent: exactly half^[12].

Shumeet Banerji, its longest-serving independent director, was first appointed on 21 July 2017 and reappointed on 21 July 2022^[12]. That second term runs out in July 2027. The same filing shows Veerayya Chowdary Kosaraju holding five independent directorships, within the cap of seven^[12][6].

Both boards meet the law. One does it with a wide margin, the other at the line. For an investor, the margin matters: a board at exactly half must fill any independent vacancy quickly to stay compliant.

The 2026 Bill: tighter tests ahead

The Corporate Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha on 23 March 2026 and sent to a Joint Parliamentary Committee the same day^[14]. The committee reported on 3 August 2026^[14]. Clause 49 rewrites parts of Section 149^[15].

• Some independence tests would cover the current financial year as well as the earlier years^[15].
• A new Section 149(6A) would make each independent director keep meeting the criteria for the whole term^[15].
• The three-year cooling-off would also bar roles in the holding, subsidiary or associate company^[15].
• Time served as an additional director would count towards the ten-year limit^[15].

These are proposals, not law. Until the Bill passes and is notified, the present Section 149 applies.

Worked example: a company crossing ₹100 crore

Take an unlisted public company whose turnover crosses ₹100 crore. Rule 4 now requires at least two independent directors^[5]. Suppose one candidate has two years as a CFO of a listed company. That is short of the three years needed for an exemption, so the candidate must pass the test within two years of joining the databank^[1][2].

A one-year databank entry costs ₹5,900 with GST, and lifetime entry costs ₹29,500^[2]. If the company later has thin profits and effective capital of, say, ₹60 crore, it can still pay each independent director up to ₹17 lakh a year under Schedule V^[7].

What to do next

• Aspiring independent directors: register on the IICA databank before accepting any board seat, and check the exemption list before booking the test.
• Take IICA's mock test first^[3], then book a slot early; the two-year clock starts on the date of inclusion in the databank.
• Keep proof of past director or KMP service, since three years in a qualifying company removes the test.
• Companies: test Rule 4 every year against paid-up capital, turnover and borrowings.
• Listed companies: track each independent director's ten-year end date and plan special resolutions a full meeting cycle ahead.
• Before inviting a candidate, check the person's other directorships and DIN history on The Company Check against the seven-seat cap.