Hi @Anjana R ,
For your questions:
Q1. Usually, list and library inherit site permission. Whether to set unique permissions depends on your business needs. You can set permissions directly for list/library, and this can be canceled at any time. There is no need to create a new site.
Q2. Of course you can. Just set the custom permissions as required.
Q3. It also depends on your business needs. If you don't want your members to be able to share files, then you can completely set it up.
Please refer to this article for more information about how to customize permissions:
Customize permissions for a SharePoint list or library
If the answer is helpful, please click "Accept Answer" and kindly upvote it. If you have extra questions about this answer, please click "Comment".
Note: Please follow the steps in our documentation to enable e-mail notifications if you want to receive the related email notification for this thread.