The offer of a one-time ex-gratia payment was made at a meeting in Toronto last week attended in person and via teleconference by about 40 family members of the victims.
The Canadian government announced the 24,000 dollar ex-gratia as recommended by the Air India inquiry commission, headed by former Canadian chief justice John Major.
Kanishka flight 182 from Montreal to Delhi was blown off near Ireland on June 23, 1985, killing all 329 people on board, mostly of Indian origin. This was the worst terror case in the country`s history.
"We are just seething," Anil Singh Hanse, an Australian whose father Narendra piloted the flight, was quoted as saying by the Vancouver Sun.
"This is insulting. Where the hell did they pull this figure from?"
Major suggested some form of payment be made to families in his massive Air India inquiry report in June 2010, although he made no official recommendation.
The USD 32-million inquiry showed that numerous warning signs of the pending terrorist attack were missed by Canada`s security agency and that missteps hampered the subsequent Royal Canadian Mounted Police (RCMP) investigation.
Major also said the families were treated with "administrative disdain" for years by the Canadian government and deserved more than just an apology.
While Hanse said he has been fighting for justice and not cash, the amount offered this week offended him.
"Now we know about all the negligence that came out in the report," Hanse said.
"This is absolutely disgraceful. It is one step forward, two steps back."
Amarjit Bhinder, whose co-pilot husband Satinder perished in the tragedy, said, "This is really an insult to my husband." "That would have been about 45 days pay for him."
Toronto resident Bal Gupta, who lost his wife Ramwati in the bombing, said most who attended the meeting were disappointed with the offer.
Mike Patton, who works in Public Safety Minister Vic Toews` office, said those offended by the amount may not understand "this is not meant to be compensation for the tragedy."
"It is certainly not our goal to insult anyone. The families were treated disrespectfully to the point where the government of Canada felt they should receive more than an apology but some money," said Patton, pointing out most of the legal claims for compensation had been settled years ago.
If relatives want to revisit those agreements, based on the new information that came out of the inquiry, they "still have access to the courts to deal with that," he said.