Major Indian IT companies faced a significant financial blow during the third quarter of fiscal year 2026. The implementation of new labour codes by the central government directly impacted their bottom lines. Tata Consultancy Services, HCLTech, Infosys and Tata Elxsi all reported substantial profit declines for the quarter ending December 31, 2025.
Profit Plunge Across the Board
Collectively, these four technology giants lost approximately ₹4,470 crore in profits during the quarter. Company filings with stock exchanges clearly attribute this downturn to one-time charges required by the new labour regulations. The Centre officially notified provisions of these codes on November 21, 2025, setting the stage for immediate financial consequences.
Infosys Takes ₹1,289 Crore Hit
Infosys, India's second-largest IT services provider, saw its profit drop to ₹6,654 crore for the December quarter. This represents a decline from ₹6,806 crore during the same period last fiscal year. The company explicitly stated that implementing the new Labour Codes resulted in a ₹1,289 crore impact.
Infosys explained this charge covers increased gratuity liability from past service costs and higher leave liability. These adjustments appear in the company's Consolidated Statement of Comprehensive Income. Without this one-time expense, Infosys would have shown stronger financial performance.
HCLTech Reports 11.2% Decline
HCLTech announced an 11.2% decrease in consolidated net profit, which fell to ₹4,076 crore for the October-December quarter. A one-time provision of ₹719 crore for labour code implementation drove this decline. Ram Sundararajan, Chief People Officer at HCLTech, indicated the company has already incorporated necessary provisions into current pay structures.
Sundararajan confirmed they do not expect further substantial incremental costs related to these new regulations moving forward. The company has effectively front-loaded compliance expenses into this single quarter.
TCS Experiences Sharp 13.91% Drop
Tata Consultancy Services reported a 13.91% profit decline, with earnings falling to ₹10,657 crore for the December quarter. The company cited a "statutory impact" of ₹2,128 crore directly tied to labour code implementation. TCS management emphasized that excluding this one-time effect, profit would have actually grown by 8.5% to ₹13,438 crore.
This substantial charge reflects how deeply the new regulations affect even India's largest IT services exporter. The company had to make significant adjustments to employee benefit provisions during the quarter.
Tata Elxsi Profit Nosedives 45.3%
Tata Elxsi faced the most dramatic impact, with profit plummeting 45.3% to ₹109 crore for the third quarter. The Bengaluru-based company recorded an exceptional charge of ₹95.7 crore specifically for increased employee benefit provisions under India's new labour codes. This one-time expense dramatically compressed profitability for the design and technology services firm.
Understanding the New Labour Codes
The Centre's new Labour Codes represent a comprehensive overhaul of India's workplace regulations. These codes consolidate 29 existing labour laws into a unified framework governing employee benefits during and after employment. Key changes include a uniform definition of wages and standardized benefits related to leaves and gratuity payments.
While intended to simplify and modernize labour regulations, the transition has created immediate financial burdens for employers. Companies must adjust their accounting for employee benefits to comply with new requirements, resulting in these substantial one-time charges.
Financial Implications and Future Outlook
The quarterly results clearly demonstrate how regulatory changes can significantly impact corporate profitability. These one-time charges highlight the financial risks associated with compliance during periods of regulatory transition. For investors and analysts, understanding these effects becomes crucial when evaluating company performance and predicting future financial results in the IT sector.
Most companies indicate these are one-time expenses rather than recurring costs. The substantial provisions taken this quarter suggest they have addressed the bulk of compliance requirements. However, the full operational impact of these labour codes on business costs and practices will become clearer in coming quarters as companies adapt to the new regulatory environment.
