The story so far:
The Supreme Court of India this week delivered a judgement that has held that parental income alone cannot be the sole determinant of whether an OBC candidate falls under the “creamy layer” category. The judgement came on March 11 in a case that was meant to clear decades-long confusion about how to apply the crucial income/wealth test prescribed in regulations, specifically for OBC candidates whose parents are officials of Central or State PSUs or in private employment, where the equivalence of their posts had not yet been established with government posts.
What do government regulations say about determining the creamy layer among OBCs?
Following the 1992 Supreme Court judgement in the Indra Sawhney case, which paved the way for the implementation of reservations for the Other Backwards Classes (OBC), the concept of a creamy layer among OBCs was introduced. The idea was to exclude certain categories of OBC candidates whose families had accumulated certain social and economic privileges over the years, known as the creamy layer.
In order to define the exclusion criteria and clarify which categories of OBC candidates would fall under the creamy layer, the Department of Personnel and Training had prepared a guiding charter, in the form of an Office Memorandum issued in September, 1993.
This OM prescribed specific categories of OBC candidates who would not be entitled to the OBC quota. This included children of people holding Constitutional positions like the Offices of President, Vice-President, judges of High Courts and the Supreme Court; children of Class I and Class II officers directly recruited into either the Central or State government; and children of officers in the Armed Forces or Paramilitary Forces above a particular rank.
Apart from these categories of OBC candidates being excluded as the creamy layer, the DoPT had prescribed a crucial income/wealth test for people who were in the salaried professional class or engaged in trade industry, people holding plantations, vacant land and/or buildings in urban areas, and people whose parents were holding posts in Central or State PSUs where the equivalence of these posts with government service posts has not yet been established.
It is in the context of this last category of people that the recent Supreme Court judgement came on March 11. In these cases, OBC candidates selected in Civil Service Examinations from 2015 onwards argued that the income/wealth test was incorrectly applied in their cases to exclude them from availing the OBC quota.
What is the income/wealth test?
The 1993 OM of the DoPT had laid out the income/wealth test that would be applicable to those who might otherwise be eligible for OBC reservation. As per this, if the parents of an OBC candidate have a gross annual income of Rs 1 lakh or more or were found possessing wealth above the Wealth Tax Act for a period of three consecutive years, the said candidate would be considered in the creamy layer and excluded from the entitlement of the OBC quota.
The limit of Rs 1 lakh, set in 1993, was revised multiple times subsequently and currently stands at Rs 8 lakh, the last revision having come in 2017.
In the 1993 OM, the DoPT had very importantly noted that while calculating the income part of the income/wealth test, the incomes of parents from salaries or agricultural land should not be included. This would mean income from other sources, like from house property, businesses, capital gains, etc.
However, in October 2004, the DoPT issued a letter that was meant to clarify issues being raised with understanding the 1993 OM. In para 9 of this letter, the DoPT specifically took up the issue of how to calculate the income for the income/wealth test for OBCs whose parents were in Central or State PSUs were equivalence of posts had not yet been established. In this paragraph, the DoPT seemed to suggest that income from salaries is to be counted to determine if the income is above the Rs 8 lakh per year threshold for three consecutive years.
In an October 2020 affidavit filed in the Supreme Court, the DoPT had pointed to both the 1993 OM and the 2004 clarificatory letter, to reveal that it had different ways of applying the income/wealth test for different categories, although the affidavit was obscure on which cases income from salaries were being counted for the income/wealth test for which it was not.
What does the Supreme Court judgement say about the 1993 OM, the income/wealth test, and the 2004 clarification?
In the judgement, the Division Bench of Justices PS Narsimha and R Mahadevan notes that until an equivalence of posts is established by the government between posts of PSUs and that of government service, the category prescribing the income/wealth test must be applicable. What the Supreme Court, in its judgement, goes on to say is that OBC candidates of such PSU staffers cannot be denied a fair creamy layer evaluation because the government had yet to establish the equivalence of posts with government service.
As for the 1993 OM and the income/wealth test, the Supreme Court has further noted that “the Income / Wealth Test operates as a residual filter”. It continued, “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.”
The top court found that while the 1993 OM was clear about not including income from salaries in the calculation for the income/wealth test, the 2004 letter had called for the inclusion of salary income in the calculation. The court even said that a House Committee’s conclusions that the 2004 clarificatory letter had obfuscated the issue were valid.
The Supreme Court went on to note that the interpretation of the 1993 OM read with the 2004 letter had led to “hostile discrimination” between children of those in government service and those in PSUs or private employment. The court 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.”
“Adopting an interpretation that disadvantages one segment of the same backward class without rational justification would amount to treating equals as unequals and would thus become the antithesis of equality, the corner stone of our Republic,” the court said.
Who does this apply to? Who will benefit from this?
The Supreme Court’s judgement, while providing relief to about 100 candidates who appeared in CSEs since 2015 and had been denied the OBC quota, will be applicable to children of parents working at PSUs and in private employment.
This would mean not just candidates who appear in exams from hereon, but also candidates who might have been selected in services in the years before, but not at the rank they would have been if their claim to the OBC quota had been allowed.
In the judgement too, the Supreme Court said, “We find no difficulty in directing the appellants to create such supernumerary posts, as required, to accommodate the candidates who satisfy the non-creamy layer criteria as clarified in the present judgment, subject to their otherwise fulfilling eligibility conditions.”
Published – March 13, 2026 09:00 am IST
