TCS Hit by Profit Drop as New Labour Laws and Legal Costs Impact Q3 FY26 Results

Tata Consultancy Services (TCS) reported a sharp decline in profit in the third quarter of FY26 after new Indian labour laws and ongoing legal disputes added heavy exceptional costs to its balance sheet.

New Labour Codes Increase TCS Costs

Tata Group’s IT giant Tata Consultancy Services (TCS) said that the newly implemented labour codes in India have had a direct financial impact on the company. These new laws led to additional expenses, which were reflected in the company’s Q3 FY26 results.

TCS recorded these costs as exceptional items worth ₹2,128 crore for the quarter from October to December, putting significant pressure on profitability.

Net Profit Falls 14% in Q3 FY26

In the third quarter of FY26, TCS’s consolidated net profit fell 14 percent year-on-year to ₹10,657 crore. The company clarified that this decline was mainly due to the large exceptional expenses booked during the quarter.

Change in Wage Definition Raises Gratuity Costs

TCS said it assessed the impact of the new labour laws based on legal advice and available information. Out of the total exceptional cost, ₹1,816 crore was related to gratuity, while ₹312 crore was due to long-term compensated absences. These costs arose because of changes in the definition of wages under the new laws.

India’s four new labour codes — the Code on Wages, Industrial Relations Code, Code on Social Security, and the Occupational Safety, Health and Working Conditions Code — came into effect on November 21.

₹1,010 Crore Hit From US Legal Dispute

TCS also recorded another exceptional charge of ₹1,010 crore due to an ongoing legal dispute in the United States. The case was filed by Computer Sciences Corporation, alleging misuse of trade secrets and confidential information.

TCS stated that after consulting external legal advisors, it is confident of having a strong case and will use all legal options to overturn the decision of the Fifth Circuit Court.

Restructuring Costs Fall Sharply

TCS has been incurring restructuring and layoff-related expenses following workforce changes announced last year. In Q3 FY26, it booked ₹253 crore as exceptional costs related to termination benefits for employees as per company policy.

This is a sharp decline compared to ₹1,135 crore recorded in the previous quarter, marking a 77 percent reduction. This suggests that the worst financial impact of restructuring is now largely behind the company.

TCS Pushes AI-First Transformation

TCS Chief Human Resources Officer Sudeep Kunnumal said that employees remain at the center of the company’s AI-first enterprise strategy. Currently, more than 217,000 employees are trained in advanced AI skills and are delivering value to clients at scale.

He also noted that the company has doubled the hiring of fresh graduates with higher-order skills to rapidly build a next-generation talent pool, which is critical for responsible innovation and sustainable growth in the AI era.