Even as artificial intelligence-led deal wins supported revenue growth for India’s top information technology (IT) firms in the December quarter, profits have taken a hit due to the implementation of new labour codes.
Tata Consultancy Services (TCS), India’s largest IT services firm, reported a Rs 2,128-crore hit to profit during the quarter as employee-cost rose due to the new labour codes. This included Rs1,816 crore for additional gratuity costs and Rs 312 crore for long-term compensated absences after India’s new labour codes came into effect on November 21.
“The incremental impact primarily arises due to a change in wage definition,” the company said. The new labour codes, which came into effect on 21 November 2025, consolidate 29 existing labour laws into four codes covering wages, industrial relations, social security, and occupational safety and working conditions. The reforms standardise wage definitions and expand social security provisions, leading to higher employee-related costs and additional provisions for companies.
Meanwhile, HCLTech reported a one-time impact of Rs 956 crore on earnings before interest and tax (EBIT) in the third quarter of FY26 due to the new labour codes, while Tata Consultancy Services (TCS) reflected rising employee costs during the same period.
In its Q3 FY26 results, HCLTech said that its reported EBIT margin included the impact of the new labour codes, which reduced operating profit for the quarter. “Q3 FY26 EBIT margins, excluding the one-time impact of New Labour Codes, came in at 18.6%,” the company said, adding that the labour code impact amounted to ₹956 crore at the EBIT level and Rs719 crore at net income.
Nonetheless, HCLTech’s Chief Executive Officer, C Vijayakumar, said during the post-earnings press conference that this is a one-time expenditure and the company will see only minimal impact in the following quarters.