. NEW DELHI: The first impact of the labour codes will be felt in the December quarter results with companies making higher provision for gratuity. “Companies will need to update their gratuity liability provisions in line with Ind AS 19, recognising past service liabilities as the new labour codes came into effect on Nov 21, 2025. Many companies are in the process of obtaining actuarial valuations to true up their gratuity liability provisions, and the impact may be reflected in the Dec quarterly results. If such a true-up is not performed, companies may provide a disclosure explaining why it was omitted unless the impact is immaterial,” said Kuldip Kumar, partner at Mainstay Tax Advisors, a consulting company. Auditors told TOI that there may be some impact on the bottom lines of some of the companies, while some others may use the opportunity to update their provisions. “Companies are evaluating the impact of the change in definition of wages and the impact on the provisions required in the quarterly accounts, in view of the labour codes, FAQs issued by the labour ministry and the Accounting Standards Board of the ICAI,” added Amarpal Chadha, partner at consulting firm EY India. Under the new law, at least half the earnings of an employee will be treated as basic salary and dearness allowance and companies will have to provide gratuity based on that. “The extent of the impact will depend on the existing compensation structure, for example, where excluded allowances exceed 50% of salary or the number of fixed-term employees, who now become eligible for gratuity after one year of service,” said Kumar. Besides, he said, according to draft rules for the new labour codes for calculating gratuity, items such as performance bonuses, stock option benefits, telephone, internet and medical reimbursements, creche allowance, and the value of meal vouchers are excluded. Therefore, it will not be surprising if some organisations can dodge the big jumps in gratuity liability. Higher provisions will be required by companies that did not always stick to the 50% gratuity formula as the rules have now categorically provided for the payment.End of ArticleFollow Us On Social MediaVideos‘Attack On My Life’: Suvendu Adhikari Targets Mamata Banerjee, Levels Serious AllegationUkrainian Envoy Hails PM Modi As Global Leader, Praises Ukraine Peace EffortsChirag Paswan Hits Out At Tejashwi Yadav Over ‘People Lost In Democracy’ commentIndia’s Reform Express Accelerates Growth and Investment, Says PM ModiAmit Shah Confident BJP Will Form Government In Kerala In 2026, Vote Share ClimbingOwaisi Blames Congress, Hits Out at UAPA After SC Denies Bail To Umar Khalid‘Some Historians, Politicians Tried To Whitewash History Of Invaders’: PM Modi Hits Out In Somnath‘Hijab-Clad PM’ Row: Owaisi’s ‘Tubelight’ Jab At Himanta Sarma Over ‘Only Hindu PM’ RemarksRSS Chief Mohan Bhagwat Calls For Hindu Unity, Says India Will Lead World In 20–30 YearsPM Modi Offers Prayers At Somnath Temple, Witnesses Grand Drone Show & Fireworks At Swabhiman Parv123PhotostoriesSobhita Dhulipala’s most graceful saree looks – PicsHow to make Instant Rava Appe for breakfastCute parenting moments of Kareena Kapoor and Saif Ali KhanInside Nupur Sanon and Stebin Ben’s stylish Christian weddingLohri 2026: 11 must-try Punjabi dishes to celebrate Lohri‘The Raja Saab’: Educational qualification of the star cast10 things 90s kids begged their parents for, that Gen Z will be shocked even existed7 baby girl names inspired by Indian holy places that parents secretly love8 countries around the world most famous for their wildlifeSamantha Ruth Prabhu’s timeless saree looks that redefine elegance123Hot PicksTrump tariffsUS Supreme CourtGold rate todayBengaluru newsCigarette price hikePublic holidays January 2026Bank Holidays JanuaryTop TrendingUS Border Petrol Agent ShootCanada Immigration Applications 2026Kim KardashianVanessa BryantTrump TariffsConnor McDavidNFL PlayoffsAlex BregmanNandani SharmaFortnite Updates
NEW DELHI: The first impact of the labour codes will be felt in the December quarter results with companies making higher provision for gratuity. “Companies will need to update their gratuity liability provisions in line with Ind AS 19, recognising past service liabilities as the new labour codes came into effect on Nov 21, 2025. Many companies are in the process of obtaining actuarial valuations to true up their gratuity liability provisions, and the impact may be reflected in the Dec quarterly results. If such a true-up is not performed, companies may provide a disclosure explaining why it was omitted unless the impact is immaterial,” said Kuldip Kumar, partner at Mainstay Tax Advisors, a consulting company. Auditors told TOI that there may be some impact on the bottom lines of some of the companies, while some others may use the opportunity to update their provisions.
“Companies are evaluating the impact of the change in definition of wages and the impact on the provisions required in the quarterly accounts, in view of the labour codes, FAQs issued by the labour ministry and the Accounting Standards Board of the ICAI,” added Amarpal Chadha, partner at consulting firm EY India. Under the new law, at least half the earnings of an employee will be treated as basic salary and dearness allowance and companies will have to provide gratuity based on that. “The extent of the impact will depend on the existing compensation structure, for example, where excluded allowances exceed 50% of salary or the number of fixed-term employees, who now become eligible for gratuity after one year of service,” said Kumar. Besides, he said, according to draft rules for the new labour codes for calculating gratuity, items such as performance bonuses, stock option benefits, telephone, internet and medical reimbursements, creche allowance, and the value of meal vouchers are excluded. Therefore, it will not be surprising if some organisations can dodge the big jumps in gratuity liability. Higher provisions will be required by companies that did not always stick to the 50% gratuity formula as the rules have now categorically provided for the payment.
