India's new labour codes, implemented towards the end of November 2025, are beginning to impact the earnings of Indian corporations, particularly in the IT sector. Companies like Tata Consultancy Services (TCS), Infosys and HCL Technologies have reported a combined burden of approximately Rs 4,000 crore in the third quarter (Q3) of FY26. These regulatory changes, which consolidate 29 existing labor laws into a unified framework, have led to increased employee-related expenses due to the rise in mandatory wage-linked contributions.
The new labor codes redefine "wages," broadening the base for calculations related to gratuity, provident fund, and leave encashment. This expanded definition brings previously excluded allowances into the calculation base, leading to higher liabilities for companies, especially those with a large proportion of their cost base tied to payroll.
TCS, the first of the IT giants to announce its Q3 results, reported a one-time expense of Rs 2,128 crore due to the statutory impact of the new labor codes. This comprised Rs 1,800 crore towards gratuity and Rs 300 crore towards leave liabilities. The company stated that this assessment was based on legal opinion and the best information available, consistent with the guidance from the Institute of Chartered Accountants of India. The impact of this expense contributed to a 14% fall in TCS's consolidated net profit for the third quarter.
Infosys reported a one-time exceptional charge of Rs 1,289 crore ($143 million) in Q3, representing an increase in gratuity liability arising out of past service cost and an increase in leave liability. As a result, the company's net profit declined by 2.2% for the quarter. Despite this, Infosys raised its revenue growth guidance for FY26 to 3-3.5% in constant currency, from 2-3% earlier.
HCL Technologies disclosed an expense of Rs 956 crore for the same reason, which was around 15 per cent of its profit before tax and exceptional costs. The company's profit declined by 11.2% for the third quarter. HCLTech's management, like TCS, has indicated that the recurring margin impact should be limited to 10-20 basis points, assuming no further regulatory changes.
Analysts predict that the IT sector will be particularly affected by these changes because of its large employee base and reliance on a domestic workforce. Brokerages, however, warn of structural cost implications. Jefferies estimates that a 2% increase in Indian employee costs could reduce FY27 earnings by 2-4%, with firms having a larger India-based workforce being more exposed.
While the immediate impact is being treated as a one-time adjustment, there are concerns about the ongoing effects of the new labor codes. The changes in wage structure will likely lead to increases in gratuity and leave encashment liabilities for IT firms. However, some analysts suggest that the recurring impact on margins may be limited to 10-20 basis points. It remains to be seen how companies will navigate these changes and mitigate the long-term impact on their financials.
