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The Supreme Court of India this week ruled that parental income alone cannot be the sole determinant of whether an OBC candidate falls into the “creamy layer” category. The judgment came on March 11 in a case that was meant to clear decades of confusion over how to apply the crucial income/wealth test prescribed in the regulations, specifically for OBC candidates whose parents are officers of central or state PSUs or in private employment where the equivalence of their posts has not yet been established with government posts.
What do the government regulations say about determining the creamy layer among OBCs?
After the 1992 judgment of the Supreme Court in the Indra Sawhney case, which paved the way for the implementation of reservations for Other Backward Classes (OBCs), the concept of a creamy layer among OBCs was introduced. The intention 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 Ministry of Personnel and Training prepared a master charter in the form of an office memorandum issued in September 1993.
This OM prescribed specific categories of OBC candidates who would not be eligible for OBC quota. This included the children of people holding constitutional offices such as the offices of President, Vice President, Judges of High Courts and the Supreme Court; children of Class I and Class II officers directly recruited to either the Central or State Governments; and children of officers in the armed forces or paramilitary forces above a certain rank.
Apart from excluding these categories of OBC candidates as the cream of the crop, the DoPT prescribed a crucial income/wealth test for people who were in the salaried professional class or engaged in commercial industries, people holding plantations, vacant plots and/or buildings in urban areas and people whose parents held posts in central or state PSUs where the equivalence of these posts with government service posts had not yet been established.
It is in connection with this last category of people that the recent verdict of the Supreme Court on March 11 came. In these cases, OBC candidates selected in civil services examinations since 2015 claimed that the income/wealth test was wrongly applied in their cases to disqualify them from availing the OBC quota.
What is an income/wealth test?
The DoPT OM of 1993 laid down an income/wealth test which would be applicable to those who might otherwise be eligible for OBC reservation. Therefore, if the parents of an OBC candidate have a gross annual income of Rs 1 lakh or more or have been found to have assets beyond the wealth tax law for three consecutive years, the said candidate would be considered creamy layer and excluded from the eligibility for OBC quota.
Set in 1993, the limit of Rs 1 lakh has subsequently been revised several times and currently stands at Rs 8 lakh, with the last revision coming in 2017.
In the 1993 OM, the DoPT very importantly noted that while calculating the income portion of the income/wealth test, parents’ income from salaries or agricultural land should not be included. This would mean income from other sources like house property, businesses, capital gains etc.
However, in October 2004, the DoPT issued a letter to clarify the issues raised with the understanding of the 1993 OM. In para 9 of the letter, the DoPT specifically addressed the question of how to calculate the income for the income/wealth test for OBCs whose parents were in central or state PSUs where job equivalence was yet to be established. In this paragraph, the DoPT appeared to suggest that salary income should be counted to determine whether the income exceeds the threshold of Rs 8 lakh per annum for three consecutive years.
In an October 2020 affidavit filed in the Supreme Court, the DoPT referred to the 1993 OM as well as the 2004 explanatory letter to reveal that it had different ways of applying the income/wealth test for different categories, although the affidavit was unclear in which cases salary income was counted as income/wealth.
What does the Supreme Court judgment say about the 1993 OM, the income/wealth test and the 2004 clarification?
In the judgement, a division bench of Justices PS Narsimha and R Mahadevan observed that until the government establishes job equivalence between PSU posts and civil service posts, the category prescribing the income/wealth test must be applicable. In its judgment, the Supreme Court further says that the OBC candidates of such PSU employees cannot be denied fair evaluation of the cream of the crop as the government was yet to establish the equivalence of the posts with the civil service.
Regarding the 1993 OM and the income/wealth test, the Supreme Court further observed 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 deliberately kept out of the common pool while determining exclusion under the income / wealth test.
The Supreme Court found that while the 1993 OM was clear that the calculation for the income/wealth test did not include salary income, the 2004 letter called for the inclusion of salary income in the calculation. The court even declared that the House committee’s findings that the 2004 explanatory letter obscured the matter were valid.
The Supreme Court further observed that the interpretation of the 1993 OM read with the 2004 letter led to “hostile discrimination” between the children of those in government services and those in PSUs or in private employment. The court said, “Treating children employed in PSUs or private employment etc. as excluded from the benefit of reservation only on the basis of their income derived from wages and irrespective of their functions (whether group A or B or group C or D) would certainly lead to hostile discrimination between similarly situated parties and would amount to unequal treatment.
“Adopting an interpretation that disadvantages one segment of the same backward class without rational justification would be tantamount to treating equals as unequals, and would thus become the antithesis of equality, the cornerstone of our republic,” the court said.
Who does this apply to? Who will benefit from this?
While the Supreme Court judgment provides relief to about 100 candidates who appeared in CSE since 2015 and were denied OBC quota, it will apply to children of parents working in PSUs and in private employment.
This would mean not only the candidates appearing in the examinations from that date but also the candidates who might have been selected in the services in previous years but not in the position they would have been in had their claim for OBC quota been allowed.
In the judgment, the Supreme Court also said, “We find no problem in directing the appellants to create such excess posts as are required to accommodate candidates who fulfill the criteria of the non-creamy layer as clarified in this judgment, provided they otherwise fulfill the eligibility conditions.”
Published – 13 March 2026 09:00 IST
