Archive · 29 Dec 2025
New Labour Codes Impact Accounting
The Indian government has introduced new labour codes that will affect how companies account for certain expenses.
These changes will start impacting companies' financial results from the December quarter of the financial year 2025-26.
The new rules require that at least half of an employee's salary be made up of basic pay, dearness allowance, and retaining allowance.
This change will affect how companies calculate gratuity payments.
Additionally, the rules have made it easier for employees to access paid annual leaves by reducing the work threshold from 240 days to 180 days.
The Institute of Chartered Accountants of India (ICAI) has advised companies to make the necessary accounting adjustments in their upcoming financial results to comply with these new regulations.
New labour codes require companies to account for gratuity implications in the December quarter of FY26.
At least 50% of total remuneration must include basic pay, dearness allowance, and retaining allowance.
Gratuity payments must be calculated based on the last drawn wages under the new codes.
The work threshold for paid annual leaves has been reduced from 240 days to 180 days.
Companies must recognize any increase in gratuity liability as an expense in the profit and loss statement.
- Who
- Companies, including listed entities, and the Institute of Chartered Accountants of India (ICAI)
- What
- Accounting implications due to new labour codes
- When
- Effective from November 21, 2025, with adjustments starting December quarter of FY26
- Where
- India
- Why
- To comply with the new labour codes and their accounting requirements
- Effective Date
- November 21, 2025
- Accounting Adjustment Period
- December quarter of FY26
- Minimum Wage Component
- 50% of total remuneration
- Work Threshold for Leaves
- Reduced from 240 days to 180 days
- Accounting Standards
- Ind AS 19 and AS 15
