TCS, Infosys, HCLTech's profits hit by ₹4,373cr labor code costs
What's the story
Tata Consultancy Services (TCS), Infosys, and HCLTech have reported a significant decline in their profits for the third quarter of FY26. The decline comes as a result of exceptional charges exceeding ₹4,373 crore (for all three firms) related to the implementation of new labor codes. Infosys announced an exceptional charge of ₹1,289 crore in its December quarter earnings report due to the statutory impact of these new labor codes.
Financial impact
TCS and HCLTech also report exceptional charges
Along with Infosys, TCS and HCLTech have also reported exceptional charges due to the new labor codes. On January 12, TCS reported an exceptional charge of ₹2,128 crore while HCLTech reported one worth approximately ₹956 crore. The charges are mainly due to an increase in gratuity liability from past service cost and an increase in leave liability.
Margin impact
Operating margins affected by new labor codes
The implementation of new labor codes has also affected the operating margins of these companies. TCS managed to keep its operating margin flat at 25.2% in Q3 despite the cost headwinds from labor code implementation. However, Infosys's operating margin fell sharply to 18.4% in Q3 from 21% in the previous quarter. HCLTech's operating margin improved to 18.6%.
Future expectations
New labor codes are expected to have limited impact
Despite the current financial impact, all three companies believe that the new labor code will have a minimal effect on their margins in the coming quarters. They expect an impact of around 10-20 basis points due to these changes. The new labor codes, which came into effect in November 2025, introduced several measures for better wages, safety, social security and welfare for India's workforce.
Sector compliance
IT sector's compliance with new labor codes
The four new Labor codes for the IT/ITes sector mandated guaranteed social security benefits through fixed-term employment, mandatory appointment letters, higher basic pay and defined work hours. The codes also required IT firms to allow women to work night shifts in all establishments. TCS revealed that out of its ₹2,128 crore spent adjusting with the new labor code, nearly ₹1,800 crore went into gratuity amounts and another ₹300 crore were to adjust leave liability.