Tata Consultancy Services (TCS), India's largest IT services company, has reported a 14% year-on-year decline in net profit for the third quarter of the current financial year (Q3FY26), falling to ₹10,657 crore from ₹12,380 crore in the same period last year. On a sequential basis, the company's net profit also experienced a decrease of 11.75% from ₹12,075 crore. Despite the dip in profit, TCS's revenue from operations witnessed a 5% increase, climbing to ₹67,087 crore from ₹63,973 crore in the corresponding quarter of the previous year.

The company has attributed this decline in net profit primarily to "exceptional items". These exceptional items totaled ₹3,391 crore and significantly impacted the bottom line. Excluding these items, TCS's net profit would have been ₹13,438 crore, an 8.5% increase from the same quarter last year.

What are these 'Exceptional Items'?

Exceptional items are costs or income that arise from a company's regular business activities but are uncommon enough to warrant separate reporting in financial statements. They are distinct from extraordinary items, which stem from rare events outside normal business operations. Identifying them involves scrutinizing financial statements for unexpected gains or losses, large unusual expenses or revenues, restructuring costs, and legal settlements.

In the case of TCS, the exceptional charges in Q3 FY26 comprised the following:

1. Impact of New Labour Codes: A statutory impact of ₹2,128 crore due to the notification of India's new labour codes. This provision primarily addresses gratuity and long-term compensated absences resulting from changes in wage definitions.
2. Provision for Legal Claim: A provision of ₹1,010 crore was made towards a legal claim filed by Computer Sciences Corporation (CSC) in 2019. The case involves allegations related to trade secrets and confidential information. The US Fifth Circuit Court affirmed liability, leading TCS to make this provision on a conservative basis. Additionally, TCS disclosed ₹342 crore under "Other interest costs" towards pre- and post-judgment interest.
3. Restructuring Costs: Restructuring expenses of ₹253 crore were incurred during the quarter ended December 31, 2025, following expenses of ₹1,135 crore in the preceding quarter. The Q3 FY26 EBIT margin included an 81 bps impact of restructuring cost.

Other Key Highlights from TCS Q3 Results:

• Revenue Growth: The company's consolidated revenue from operations grew by 5% year-on-year to ₹67,087 crore.
• AI Revenue: The annualised revenue from Artificial Intelligence (AI) business reached $1.8 billion, marking a 17.3% quarter-on-quarter increase in constant currency terms.
• Dividend Announcement: TCS declared a third interim dividend of ₹11 and a special dividend of ₹46 per share, totaling ₹57 per share. The record date for determining eligible shareholders for the payout is Jan. 17, and the payment will be made on Feb. 3.
• Operating Margin: The company's operating margin remained stable at 25.2%.
• Total Contract Value (TCV): The total contract value at the end of Q3 stood at $9.3 billion. New deal wins were at $3,006M, up 17.0% QoQ & up 43.5% YoY.
• Acquisition: TCS signed a definitive agreement to acquire Coastal Cloud Holdings, LLC.
• Key Markets: The Americas market remained the largest for TCS, contributing 50.5% of the business, followed by Europe, Asia Pacific, and India.
• Key Verticals: BFSI contributed 31.9% revenue, Consumer Business contributed 15.4% and Life Sciences & Healthcare contributed 10.5%.

While TCS's Q3 results reflect a decline in net profit due to specific one-time provisions, the company's revenue growth and strategic focus on areas like AI indicate continued operational strength and potential for future growth.