Settling the decades-long confusion over how to calculate wealth or income to determine the creamy layer status of OBC candidates for reservation purposes, the Supreme Court ruled this week that this “cannot be decided solely on the basis of the [parental] income”. This is likely to widen the reservation pool to include the children of senior public sector officials who had earlier been excluded on the basis of their parents’ annual salaries being above the ₹8 lakh threshold.
The court said that the framework to exclude the creamy layer from the OBC quota is clear that parental income from salaries and agricultural land are to be kept out while applying the income/wealth test.
The Bench of Justices P.S. Narasimha and R. Mahadevan were hearing an appeal by the Union government against lower court rulings in favour of such OBC candidates. The cases arise from confusion over how to apply the income/wealth test for OBC children of PSU/PSB officials in the absence of equivalence with government posts, and whether income from salaries can be included in these calculations. During the hearings, OBC candidates selected in civil services examinations over the last decade argued that the Centre had incorrectly deemed them as part of the excluded creamy layer by including the salaries of their parents, who worked in Central and State PSUs.
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‘Based on status, not just income’
In its March 11 judgement, the court noted that the creamy layer exclusion criteria are “status-based rather than purely income-based, reflecting the policy understanding that advancement within the governmental service hierarchy denotes social progression independent of fluctuating salary levels”.
When the OBC quota was introduced in 1993, a guiding charter was created to exclude OBC candidates whose families had accumulated certain social and economic privileges over the years, known as the creamy layer. This would then allow reservation benefits only for those declared as ‘non-creamy layer’ or NCL candidates, based on several criteria, including a crucial income or wealth test.
The 1993 charter of the Department of Personnel and Training (DoPT) had declared some OBC families ineligible on the basis of their occupations. Thus, children of people in constitutional posts, senior Central and State government employees, members of the armed forces, and property owners supposedly could not avail of the OBC quota for the civil services. However, exceptions were carved out of these exclusions: for instance, children of MPs and MLAs; government officials who have been promoted, not hired, into senior positions; and owners of unirrigated agricultural land, among others, are all eligible for OBC quotas, subject to a parental annual income limit of ₹8 lakh.
However, the DoPT has differentiated in how this income test is applied. With the help of a clarificatory letter issued in October 2004, the interpretation that has been applied was that parental salaries could be counted separately to apply the income test for determining the creamy layer for candidates whose parents worked in Central or State PSUs, an interpretation that was contested in the present cases.
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‘Unequal treatment’
Delivering the judgement in this batch of cases, the Supreme Court of India said, “Treating the children of those employed in PSUs or private employment, etc., as being excluded from the benefit of reservation only on the basis of their income derived from salaries, and without reference to their posts (whether Group A or B, or Group C or D) would certainly lead to hostile discrimination between parties who are similarly placed and would amount to equals being treated unequally.”
The confusion on whether income from salaries is to be included in applying the income/wealth test emanated from the interpretation of the 1993 charter of the DoPT with the help of the clarificatory letter issued in 2004, which Parliamentary committees have argued confused the issue further.
In the order on March 11, the Supreme Court said, “Any interpretation of the 1993 OM or the 2004 Letter that results in unequal treatment of similarly placed OBC candidates would not only be legally erroneous but constitutionally impermissible.”
‘Defeats constitutional objective’
On the 1993 Office Memorandum of the DoPT, the Supreme Court said, “The plain language of these explanations makes it clear that salary income and agricultural income are consciously kept outside the common pool while determining exclusion under the Income / Wealth Test.” Further, with regard to the 2004 clarificatory letter, the origins of which could not be determined, the top court said, “Determination of creamy layer status solely on the basis of income brackets, without reference to the categories of posts and status parameters enunciated in the 1993 OM is clearly unsustainable in law.”
The court added, with reference to the 2004 clarificatory letter, “Salary income cannot be mechanically aggregated in a manner that defeats the constitutional objective articulated in Indra Sawhney.”
Advocate Shashank Ratnoo, who led the fight on behalf of candidates who argued that their creamy layer status had been incorrectly determined in High Courts and in the Supreme Court, told The Hindu, “This hostile discrimination had to end, which was brought about by the 2004 clarificatory letter.”
In the judgement, the Supreme Court of India said, “It is also evident from a comprehensive reading of the 1993 OM along with the clarificatory letter dated 14.10.2004 that income from salaries alone cannot be the sole criterion to decide whether a candidate falls within the creamy layer. The status as well as the category of post to which a candidate’s parent or parents belong is essential.”
Published – March 12, 2026 10:19 pm IST
