NEW DELHI: The predominant affect of the labour codes will be felt within the December quarter results with firms making bigger 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,” mentioned Kuldip Kumar, accomplice at Mainstay Tax Advisors, a consulting company. Auditors steered TOI that there’ll be some affect on the bottom lines of just a few of the companies, whereas some others could well suppose the chance 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, accomplice at consulting agency EY India. Under the new law, at least half the earnings of an employee will be handled as frequent salary and dearness allowance and firms will have to provide gratuity primarily based fully 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,” mentioned Kumar. Moreover, he mentioned, primarily based fully on draft tips for the new labour codes for calculating gratuity, items corresponding to performance bonuses, stock possibility advantages, mobile phone, web and clinical reimbursements, creche allowance, and the value of meal vouchers are excluded. Therefore, this is in a position to no longer be gorgeous if some organisations can dodge the abundant jumps in gratuity liability. Increased provisions will be required by firms that did no longer always keep on with the 50% gratuity system as the guidelines grasp now categorically supplied for the cost.
