Indian IT Sector Takes a ₹4,373 Crore Hit: How New Labour Codes Reshaped Q3 FY26 Earnings
Indian IT sector Q3 FY26 earnings faced a rare disruption as companies absorbed a massive one-time cost impact. The trigger was not demand slowdown, but the implementation of new labour codes.
This development matters to Indian investors because it directly affected profitability, margins, and compensation structures across large IT firms.
Why Indian IT Companies Took a ₹4,373 Crore Hit
The government implemented the new labour codes on November 21, 2025, forcing companies to redefine wages and employee benefits.
This change led to retroactive recalculation of statutory liabilities, resulting in large one-time provisions.
Breakdown of One-Time Charges by Company
The table below shows how the three largest IT companies absorbed the labour code impact.
| Company | One-Time Charge | Primary Reason |
|---|---|---|
| Tata Consultancy Services | ₹2,128 crore | Gratuity and leave encashment recalculation |
| Infosys | ₹1,289 crore | Revised gratuity and leave liabilities |
| HCLTech | ₹956 crore | EBIT-level provisioning for benefits |
The combined impact across these firms stood at ₹4,373 crore, making it one of the largest regulatory-driven cost adjustments in the sector.
What Changed Under the New Labour Codes
- 50% wage rule: Wages must form at least 50% of total CTC
- Retroactive application: Past service benefits recalculated
- Fixed-term coverage: Gratuity applies after one year of service
Earlier, IT firms structured salaries with lower basic pay to optimise statutory costs. The new rules made those structures non-compliant.
Immediate Impact on Profits and Margins
- TCS: Net profit declined by 14%
- HCLTech: Net profit fell by 11%
Management across companies clarified that this impact is largely one-time and not expected to repeat in future quarters.
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Frequently Asked Questions
Are labour code costs recurring for IT companies?
No. Companies have stated that the bulk of the cost is a one-time adjustment.
Will employees benefit from the new wage rules?
Employees may see lower take-home pay but higher long-term social security benefits.
Does this weaken the Indian IT sector?
No. The impact reflects regulatory compliance, not demand or execution weakness.
Key Takeaways
- Indian IT companies absorbed a ₹4,373 crore one-time hit in Q3 FY26
- The impact arose from labour code wage and benefit changes
- Long-term fundamentals of the IT sector remain intact
Disclaimer
This article is for informational purposes only and does not constitute financial, tax, or legal advice. Please consult a qualified professional before making decisions.
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