Tata Consultancy Services (TCS), Infosys and HCLTech together incurred over Rs 4,373 crore in exceptional charges in the December quarter due to the implementation of the new labour codes, leading to a sharp
double-digit decline in profits for India’s three largest IT services companies.
On January 14, Infosys reported an exceptional charge of Rs 1,289 crore in Q3, citing the statutory impact of the new labour codes. The adjustment included higher gratuity liabilities linked to past service costs and an increase in leave-related liabilities.
Earlier, on January 12, TCS reported an exceptional charge of Rs 2,128 crore, while HCLTech disclosed Rs 956 crore related to labour code implementation.
Impact on margins
Despite the cost burden, TCS managed to maintain a sequentially flat operating margin of 25.2 per cent in Q3, while HCLTech improved its margin to 18.6 per cent. Infosys, however, saw a sharp contraction.
Infosys reported an operating margin of 18.4 per cent in Q3, down from 21 per cent in the previous quarter. The company said its adjusted operating margin would have been around 21.2 per cent if labour code-related costs were excluded.
All three companies said the labour codes would have only a limited impact on margins in the coming quarters, estimating an ongoing effect of around 10–20 basis points.
What company executives said
The new labour codes, which came into effect in November 2025, introduced reforms aimed at improving wages, safety, social security and employee welfare.
For the IT and ITeS sector, the four labour codes mandate guaranteed social security benefits for fixed-term employees, compulsory appointment letters, higher basic pay, defined working hours, and provisions enabling women to work night shifts across establishments.
TCS said that of the Rs 2,128 crore charge, about Rs 1,800 crore was towards gratuity adjustments and around Rs 300 crore towards leave liabilities.
“This is all past service cost and will be incurred on an ongoing basis. We expect the impact to be in the range of about 10–15 basis points. We do not expect further costs unless the rules provide additional clarity,” TCS CFO Samir Seksaria said during the post-earnings call.
Infosys CFO Jayesh Sanghrajka said the labour code would have an annual recurring impact of about 15 basis points. “That will be a regular impact of the labour code as we go ahead,” he said.
HCLTech reported a one-time impact of about $109 million to comply with the mandated changes.
“As per the labour code, we see very minimal ongoing costs, in the range of 10 to 20 basis points,” HCLTech CEO C Vijayakumar said during the company’s earnings conference in Noida.
What brokerages are saying
Brokerages such as Jefferies do not view the labour code impact as a one-time cost and expect sustained margin pressure on IT companies, which could ultimately translate into lower wage hikes.
Under the labour codes, employee wages must be at least 50 per cent of total cost-to-company, with provident fund and gratuity calculated on wages. This is expected to increase recurring employee costs and also result in a significant one-time financial impact.
“New labour codes will add to margin pressures from slower revenue growth, AI-led business mix changes and potentially higher onsite wage hikes in FY27 and FY28 due to changes in H-1B visa norms,” Jefferies said in a note.
The brokerage added that a 2 per cent rise in Indian employee costs could reduce FY27 earnings estimates by 2–4 per cent for IT companies. Firms are likely to offset part of the impact through lower wage hikes, particularly at senior levels.
