India’s biggest IT services companies — Tata Consultancy Services (TCS), Infosys and HCLTech — have reported significant one-time charges linked to the implementation of new labour codeswhich together totalled around ₹4,373 crore in the third quarter of fiscal 2026. These regulatory costs have squeezed profits and margins at the country’s top software exporters, even as revenue growth continues.
Why The Labour Code Charges Occurred
The new labour codes, which came into effect in November 2025consolidate and reform multiple existing labour laws and introduce updated definitions and provisions related to employee benefits. Among other changes, the codes:
- Redefine wages for statutory benefits, requiring a larger portion of compensation to be treated as wages.
- Increase liabilities for gratuity and leave encashment based on the new wage definition.
- Require companies to recognise past service costs and enhanced employee benefit provisions in their accounts.
To comply with these rules, the three IT giants had to make substantial one-time accounting provisions in their quarterly books.
How Much Each Firm Took In Exceptional Charges
In their December quarter results:
- TCS booked a ₹2,128 crore exceptional expense related to gratuity, leave liability and other labour code impacts.
- Infosys recognised a ₹1,289 crore hitreflecting increased gratuity and leave provisions as per the new framework.
- HCLTech recorded about ₹956 crore in one-time costs tied to the same regulatory changes.
Impact On Profits And Margins
These non-recurring charges materially affected net profits and operating metrics in Q3 FY26:
- Infosys’s net profit fell about 2.2 percent year-on-yearpartly due to the labour code provision, and its operating margin dipped below previous levels.
- TCS and HCLTech also saw profit declines on a year-on-year basis, despite solid revenue growth. Market analysts view these costs as accounting-driven one-off items rather than signs of weakened underlying demand.
Despite the charges, the IT majors maintained relatively stable operating margins. Analysts note that the ongoing impact on margins is expected to be limited — roughly 10 to 20 basis points annually once initial adjustments are digested.
Industry And Investor Reactions
Brokerages and industry commentators say these labour code provisions, while largely non-recurring, highlight the cost of regulatory compliance for labour-intensive sectors like IT services. Firms will need ongoing adjustments for payroll and benefit liabilities, but the one-time accounting hit should not materially alter long-term profitability or demand trends.
Investors watching Q4 earnings also expect similar one-time charges at other technology firms that have yet to report results, suggesting this is a sector-wide phenomenon as companies align with the updated labour framework.
What This Means Going Forward
The implementation of the new labour codes marks a significant regulatory shift for Indian corporate India, especially for sectors with large employee bases. While these one-time charges impact quarterly earnings headlines, the long-term view is that clearer labour law frameworks could support better workforce welfare and compliance reporting.
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