The Q3 profit for most IT companies were hit by the implementation of the new labour codes, which required one-time provisioning for employee benefits and came into effect in November 2025.
If we look at the key IT numbers that have been announced so far- From TCS, Infosys, HCLTech, Wipro, Tech Mahindra and LTIMindtree, the cumulative hit so far exceeds Rs 5,000 crore in the December quarter.
Jefferies on labour code impact for IT companies
Jefferies, in its report, noted that the new labour codes may not only result in a large one-time impact on profits in the third quarter. They believe that this could also increase recurring employee costs.
“While the gross recurring impact may push employee costs up by as much as 5%, IT firms may limit this impact by lowering wage hikes at senior levels. A 2% increase in Indian employee costs may hit FY27 earnings estimates,” Jefferies highlighted.
Here is a detailed analysis of the hit top tier IT companies have taken thus far in Q3.
TCS takes Rs 2,128 crore hit
Tata Consultancy Services (TCS) reported the largest hit among its peers, booking a statutory impact of Rs 2,128 crore. This led to a 13.9% year-on-year (YoY) fall in its net profit to Rs 10,657 crore in Q3 FY26 from Rs Rs 12,380 crore in Q3FY25.
TCS CFO Samir Seksaria said the provisioning included Rs 1,800 crore towards gratuity and around Rs 300 crore for leave encashment. He warned that the labour codes would continue to shave off 0.10–0.15 per cent from margins in the coming periods. “We expect the ongoing impact to be minimal, around 10 to 15 basis points,” he noted.
Infosys takes Rs 1,289 crore exceptional charge
Infosys reported a one-time exceptional charge of Rs 1,289 crore due to the new labour codes. The Bengaluru-based IT major saw its net profit decline 2.2% to Rs 6,654 crore in Q3 FY26.
CEO Salil Parekh said the labour codes would result in an ongoing annual margin impact of around 15 basis points (bps). However, he expressed confidence in demand conditions, particularly those driven by AI adoption.
HCLTech reports Rs 956 crore labour code hit
HCLTech reported a one-time provision of Rs 956 crore, which dragged its net profit down 11.2% year-on-year to Rs 4,076 crore. The company said profits would have grown in the absence of this impact.
Shiv Walia, Chief Financial Officer of HCLTech, said during the post-earnings call that restructuring costs of 26 basis points weighed on services margins, along with wage hikes of 80 basis points and furlough seasonality of 45 basis points, which impacted overall margins.
“Q3 EBIT margins, excluding the one-time impact of the New Labour Codes, came in at 18.6% (up 111 basis points quarter-on-quarter),” he said.
Wipro: Q3 Labour code hit
Wipro reported a 7% YoY decline in its consolidated net profit in Q3FY26 at Rs 3,119 crore as It incurred Rs 302.8 crore one-time gratuity expense.
Tech Mahindra CFO warns of 0.20% quarterly margin impact
Tech Mahindra was the only major IT firm to report a profit increase, with net profit rising 14% to Rs 1,122 crore on the back of margin expansion. However, the company still set aside $ 30 million, or about Rs 272.4 crore, for the new wage codes. The company’s CFO Rohit Anand cautioned that the labour code implementation would shave around 0.20% off margins on a quarterly basis.
LTIMindtree sees impact of labour code hit
LTIMindtree reported a one-time cost of Rs 590.3 crore related to the implementation of the new labour codes, which weighed on its Q3 FY26 earnings. It reported 10.58% YoY in its net profit at Rs 970.6 crore.
LTIMindtree reported a one-time cost of Rs 590 crore related to the implementation of the new labour codes, which weighed on its Q3 FY26 earnings.
What does the new labour code entail
The new labour regulations consolidate 29 existing labour laws and mandate changes in how companies calculate employee benefits such as gratuity and leave encashment.
There are three key changes under the new labour codes. First, “wages” will become the basis for calculating employee benefits such as Provident Fund (PF), gratuity, leave encashment and the Employee State Insurance (ESI) scheme. Wages will need to be at least 50% of cost to company (CTC). Second, firms may have to provide employees with the option to encash excess leave exceeding 30 days every year. Third, fixed-term employees and subcontractors will now be eligible for gratuity after one year of service, compared with five years earlier.
Conclusion
Overall, Jefferies highlighted that the new Labour Codes may add to the “margin pressures from slower revenue growth, AI-led business mix change and potentially higher onsite wage hikes in FY27/FY28 due to changes in H1B visa norms.” With risks to both growth and margins estimates, the brokerage house sees limited scope for PE rerating going forward.