Why Labor Codes Cost TCS, Infosys, HCLTech Billions in Q3

India’s top IT services giants—Tata Consultancy Services (TCS), Infosys, and HCLTech—have reported a massive combined financial hit exceeding ₹4,370 crore in the third quarter of FY26.

This significant expenditure, booked as a one-time exceptional charge, stems from the nationwide implementation of India’s new labor codes in November 2025.

TCS, HCLTech, Infosys Impacted: The ₹4,373 Crore Breakdown

The statutory impact varies across the firms, reflecting the scale of their respective workforces and historical benefit structures. 

TCS absorbed the largest hit at ₹2,128 crore, leading to a 14% year-on-year dip in its quarterly profit. 

Infosys followed with a charge of ₹1,289 crore, while HCLTech reported an impact of ₹956 crore ($109 million).

Why the Sudden Surge in Costs?

The financial strain is primarily driven by the Code on Wages (2019) and the Code on Social Security (2020).

The new framework introduces a uniform definition of “wages,” mandating that basic pay must constitute at least 50% of an employee’s total remuneration (CTC).

This reclassification has triggered:

• Retrospective Gratuity Adjustments: Companies had to significantly increase provisions for past service costs as the base for gratuity calculation widened.
• Leave Encashment Liabilities: Updated wage definitions led to higher valuations for accumulated employee leaves.
• Statutory Payouts: Increased employer contributions toward Provident Fund (PF) and other social security benefits.

Impact on Profit Margins of TCS and HCLTech

While the charges are largely non-recurring, they have created immediate pressure on operating margins.

Infosys saw its margin slide to 18.4% from 21% in the previous quarter.

However, TCS managed to hold its margin steady at 25.2%, and HCLTech actually reported a modest uptick to 18.6%, aided by aggressive cost-control measures elsewhere.

Outlook: Recurring vs. Non-Recurring

Industry executives, including TCS CFO Samir Seksaria, have assured investors that the bulk of this “compliance shock” is a one-time accounting adjustment.

Moving forward, the recurring impact is expected to be limited to 10–20 basis points annually.

Despite the short-term profit dent, analysts suggest that the codes will eventually bring greater transparency and standardized welfare to India’s massive IT workforce.

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