Clearing up the decades-long confusion over how to calculate wealth or income to determine the status of the creamy layer of OBC candidates for reservation purposes, the Supreme Court ruled this week that it “cannot be decided solely on the basis of (parental) income”. This is likely to expand the reservation pool to include children of senior public sector officials who were earlier excluded on the basis of their parents’ annual salaries above the ₹8000 threshold.
The court said that the framework for excluding the cream of the OBC quota is clear that parents’ income from wages and agricultural land is to be retained while applying the income/wealth test.
A Bench of Justices PS Narasimha and R. Mahadevan was hearing the Union Government’s appeal against lower court orders in favor of such OBC candidates. These cases arise out of confusion over how to apply the income/wealth test for OBC children of PSU/PSB officers in the absence of equivalence with government posts and whether salary income can be included in these calculations. During the hearing, OBC candidates selected in state exams over the last decade alleged that the Center wrongly considered them part of the excluded cream 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 judgment, the court noted that the criteria for excluding the creamy layer are “based on status rather than purely on income, reflecting the political understanding that advancement in the hierarchy of government services means social advancement independent of fluctuations in salary levels.”
When the OBC quota was introduced in 1993, a master 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 preference only for those declared as ‘non-cream layer’ or NCL candidates, based on several criteria, including a crucial test of income or assets.
The 1993 Department of Personnel and Training (DoPT) charter declared some OBC families ineligible on the basis of their occupation. Children of people in constitutional posts, senior central and state government employees, members of the armed forces and property owners were thus allegedly barred from availing the OBC quota for government services. However, exceptions were made to these exemptions: for example, children of MPs and MLAs; government officials who were promoted, not hired, to senior positions; and owners of non-irrigated agricultural land, among others, are all eligible for OBC quotas, subject to a parental annual income limit of ₹8 lakh.
However, the DoPT differs in how this income test is used. With the help of an explanatory letter issued in October 2004, an interpretation was given that parental salaries can be counted separately for applying the income test to determine the creamy layer for candidates whose parents were working in Central or State PSUs, an interpretation which was challenged in the present cases.
EXPLAINED | For reservations and OBC cream layer
“Unequal Treatment”
The Supreme Court of India while delivering its judgment in this series of cases 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 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 equally situated and equal.”
Confusion over whether salary income should be included in the application of the income/wealth test arose from the DoPT’s interpretation of the 1993 charter, aided by an explanatory letter issued in 2004, which parliamentary committees said further muddled the issue.
In a March 11 order, the Supreme Court said, “Any interpretation of the 1993 OM or the 2004 letter which results in unequal treatment of similarly situated OBC candidates would not only be legally erroneous but constitutionally impermissible.
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“Defeats the constitutional objective”
In a 1993 memorandum to the DoPT, the Supreme Court said, “The plain language of these explanations clearly shows that salary income and agricultural income are deliberately kept out of the common fund, determining exclusions under the income/wealth test. Further, with regard to the 2004 explanatory letter, the origin of which could not be determined, the Supreme Court said: “Determination of the status of the creamy layer only on the basis of income groups, without reference to the job categories and status parameters mentioned in The 1993 OM is clearly unsustainable in law.
Citing a 2004 explanatory letter, the court added: “Salary income cannot be mechanically aggregated in a manner that would be inconsistent with the constitutional objective articulated in Indra Sawhney.
Advocate Shashank Ratnoo, who led the fight on behalf of the candidates who claimed their creamy layer status was wrongly determined in the high courts and the Supreme Court, told The Hindu: “This hostile discrimination had to end, which was brought about by the 2004 clarification letter.”
In the judgment, the Supreme Court of India said: “From a comprehensive reading of the 1993 OM along with the clarification letter dated 14.10.2004, it is also clear that salary income alone cannot be the sole criterion for deciding whether a candidate falls in the creamy layer. The rank and category of the post to which the essential parent or parents of the candidate belong.”
Published – 12 March 2026 22:19 IST
