The Supreme Court on Wednesday (March 11) ruled that income cannot be the sole criterion to decide the creamy layer among Other Backward Classes (OBCs), and settled the long-pending question of equivalence between PSUs and private sector employees and those in the government sector.

Those included in the ‘creamy layer’ are not entitled to OBC reservation benefits. Here is what the long-running issue is about, and its possible impact.

What is new?

The Supreme Court on Wednesday delivered a verdict reserved on October 30, 2025. The division Bench of justice PS Narasimha and justice R Mahadevan held that, “The object of excluding the creamy layer is…not to create artificial distinctions between equally placed members of the same social class…. unequal treatment of similarly placed OBC candidates would not only be legally erroneous but constitutionally impermissible.”

The Bench was hearing petitions arising due to an October 14, 2004 letter issued by the Department of Personnel and Training (DoPT) with regard to the creamy layer criterion, clarifying an Official Memorandum (OM) issued long back in September 1993.

The court noted that while the OM excluded income from salary and agricultural income from the income/ wealth test for determination of creamy layer status, the letter dated October 14, 2004 directed inclusion of salary income of PSU and private sector employees, and this resulted in hostile discrimination between the wards of government servants and those of PSU/private sector employees.

The court ruled, “…in other words, 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, thereby attracting the rigour of the equality doctrine under Articles 14, 15 and 16…”

Following the landmark 1992 SC ruling in Indra Sawhney vs Union of India, also known as the Mandal verdict, the concept of ‘creamy layer’ within the OBCs was introduced.

On September 8, 1993, the DoPT issued a circular clarifying who is classified as OBC and who belongs to the creamy layer among them.

For those in government jobs, the ‘creamy layer’ specifies groups such as persons occupying constitutional posts; Group-A/Class-I officers of All India Services, Central services and state services; Group-B/Class-II services of Centre and state; employees of PSUs; officers of Armed Forces; professionals and those from trade and industry; property owners; and an income/wealth test.

In a nutshell, if either parent is a direct recruit of Group-A, or is promoted before the age of 40, their children cannot take advantage of the OBC quota. Similarly, if both parents are Group-B direct recruits, their children will be covered under the creamy layer.

For Armed Forces, officials up to the rank of Lieutenant Colonel can avail the OBC quota, but higher ranks are in the creamy layer.

The criterion for those not in the government sector was set at Rs 1 lakh per annum in 1993. It was revised in due course and since 2017, this income limit is Rs 8 lakh.

What are the DoPT OM of 1993 and the clarification of October 2004?

The DoPT issued a “Clarification on Creamy Layer among OBCs” on October 14, 2004, saying in para 9 that “the creamy layer status of sons and daughters of persons employed in organisations where equivalence or comparability of posts vis-à-vis posts in Government has not been evaluated is determined as follows: Income of the parents from the salaries and from the other sources (other than salaries and agriculture land) is determined separately. If either the income of the parents from the salaries or the income of the parents from other sources (other than salaries and agricultural land) exceeds the limit of Rs 2.5 lakh per annum (that time this was ceiling for creamy layer for private persons) for a period of three consecutive years, the sons and daughters of such persons shall be treated to fall in creamy layer.”

The DoPT letter was not implemented effectively till 2014, till the UPA government was in power and was making efforts to woo OBCs.

It was implemented effectively from the Civil Service Examination (CSE) 2015 (batch 2016), with the DoPT verifying caste certificates based on this clarification.

The Centre was considering (as The Indian Express had reported exclusively in August 2025) a proposal to apply “equivalence” among various Central and state government organisations, public sector enterprises, universities and private sector employees. However, sources say, the draft cabinet note was not moved.

What was the impact of the DoPT clarification?

Since the 2016 batch, there have been around 100 OBC candidates who were issued caste certificates from various authorities and cleared the CSE, but were rejected during the DoPT scrutiny. In fact, while they qualified other exams as OBC candidates, the DoPT rejected their claim in the CSE.

Some of the affected candidates then reached various High Courts, like in Madras, Delhi, and Kerala.

One of the cases was filed by Rohit Nathan before the Madras High Court and fought by Shashank Ratnoo all the way to the Supreme Court.

Like Nathan, Ratnoo, a practising lawyer, is an affected candidate. He secured the 688th rank and was hoping to get the Indian Revenue Service (IRS) in 2016, but was declared a general category candidate and could not make it to any service.

The EWS quota

In the September 1993 circular, it was categorically stated that income from “salary” or “agriculture” would not be counted for the test of income and wealth for deciding the creamy layer status.

During the hearing on petitions against reservation for Economically Weaker Sections (EWS) introduced by the Narendra Modi government in 2019, when the Supreme Court asked why the income criterion for EWS categories and for OBCs was the same at Rs 8 lakh, the counsel, based on the committee headed by then Revenue Secretary Ajay Bhushan Pandey, submitted, based on the same 1993 circular, that while computing income for “Creamy Layer among OBCs”, the “income from salaries or agricultural land” was “excluded”, but in cases of EWS, this was “included.”

Who will benefit from the Supreme Court ruling?

Apart from the candidates taking exams henceforth, others will benefit too. Ratnoo said, “Those already working in various services will be allocated higher-rank services. Some of them may get different cadres (in case they are among the three All India Services). Some who could not secure a service, will now be allocated one based on their rank revised being an OBC candidate.”

The Supreme Court has also said, “…we find no difficulty in directing … 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.”