In this study role of upper ocean processes in the evolution of sea surface temperature (SST) seasonal variations over the tropical Indian Ocean (TIO) is investigated in climate forecast system version1 (CFSv1) and version2 (CFSv2). Analysis reveals that CFSv2 could capture seasonal evolution of SST, wind speed and mixed layer depth better than CFSv1 with some biases. Discrepancy in reproducing the evolution of seasonal SST in coupled models leads to bias in the spatial and temporal distribution of precipitation. This has motivated to carry out mixed layer heat budget analysis in determining seasonal evolution of TIO SST. Spatial pattern of mixed layer heat budget from observations and models suggest that the processes responsible for SST tendency differ from region to region over the TIO. Further it is found that models underestimated SST tendency compared to the observations. Misrepresentation of advective processes and heat flux (HF) over the TIO is mainly responsible for the distortion of seasonal SST change in the coupled models. Sub-regional heat budget analysis reveals that CFSv1 is unable to reproduce the annual cycle of mixed layer temperature (MLT) tendency over the Arabian Sea, while CFSv2 captured the annual cycle of SST with systematic cold bias. Misrepresentation of the annual cycles of net HF and horizontal advection (Hadv) are accountable for the low rate of change of MLT during most of the year. Hadv during summer season is underestimated by 50 and 25 % respectively in CFSv1 and CFSv2. Further, CFSv1 fails to simulate MLT tendency due to improper evolution of HF annual cycle over the Bay of Bengal. Though annual cycle of HF in CFSv2 is well represented over the Bay of Bengal, its contribution to MLT change is underestimated compared to observations. Over the southern TIO region, MLT tendency is dominated by HF and Hadv terms in both observations and models. Contribution of HF to the annual cycle of MLT tendency is underestimated in CFSv1 whereas it is overestimated in CFSv2. Contribution of Hadv to MLT change is underestimated by about 50 % in CFSv1 and 10–20 % in CFSv2 over southern TIO. These errors in HF and Hadv are associated with biases in HF components and surface wind representation. Evolution of lead–lag relationship between HF and MLT/SST in both the observations and models suggest the importance of HF in SST evolution over the TIO region. Over all, CFSv2 produced better SST seasonal/annual cycle in spite of having cold bias. This improvement in CFSv2 may be attributed to better cloud–aerosol–radiation physics, which reduces radiation biases. Updated land-surface, ocean and sea ice processes and ocean component may be responsible for improved circulation and annual cycle of ocean–atmospheric components (winds and ocean circulation). However, there is a requirement for improved parameterization of turbulent HF and radiation estimates in CFSv2 to reduce the cold SST bias.