India’s top IT services companies, including Tata Consultancy Services (TCS), Infosys, and HCLTech, have reported significant one-time charges totaling ₹4,373 crore in the third quarter of fiscal 2026 due to the implementation of new labor codes. These charges have affected the companies’ profits and margins, despite continued revenue growth. The new labor codes, which came into effect in November 2025, consolidate and reform existing labor laws, introducing updated definitions and provisions related to employee benefits.
The codes require companies to redefine wages for statutory benefits, increase liabilities for gratuity and leave encashment, and recognize past service costs and enhanced employee benefit provisions in their accounts. As a result, the three IT giants had to make substantial one-time accounting provisions in their quarterly books. TCS booked a ₹2,128 crore exceptional expense, Infosys recognized a ₹1,289 crore hit, and HCLTech recorded ₹956 crore in one-time costs.
These non-recurring charges have materially affected net profits and operating metrics in Q3 FY26. Infosys’s net profit fell 2.2% year-on-year, 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. However, market analysts view these costs as accounting-driven one-off items rather than signs of weakened underlying demand.
The ongoing impact on margins is expected to be limited, with analysts noting that the charges will have a minimal effect on long-term profitability or demand trends. The implementation of the new labor codes marks a significant regulatory shift for Indian corporate India, especially for sectors with large employee bases. While the one-time charges may impact quarterly earnings headlines, the long-term view is that clearer labor law frameworks could support better workforce welfare and compliance reporting.
Industry commentators and brokerages say that these labor code provisions highlight the cost of regulatory compliance for labor-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 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 labor framework. Overall, the new labor codes are expected to have a limited impact on the long-term prospects of India’s IT services industry.