It is assumed that you are a resident and ordinary resident (ROR) of India.

Income/royalty from book sales can be categorized as income from other sources (IOS) or profits and gains from business and profession (PGBP). Whether an income is to be shown under IOS or PGBP depends on various factors (e.g. volume, revenue, frequency, etc.) and facts of each case.

In case you are primarily engaged in the business/profession of authoring books for earning royalty/advertisement income, etc., you may consider reporting it under PGBP, else you may consider reporting the same under IOS.

As per the instructions issued for ITR Forms for FY 2020-21, Form ITR 1 may be used for tax return filing (where the total income does not exceed ₹50 lakh) reporting income from salary, one house property, and interest income/family pension/ dividend taxable under the head IOS. Further, the form cannot be used to claim any deduction of expenses relating to the income under the head IOS (except family pension). Therefore, ITR 1 may not be the appropriate form for disclosing the royalty/advertisement income under the head “income from other sources" and you may use ITR 2 for filing the tax return. ITR 3 is applicable if income is disclosed under PGBP.

To corroborate the disclosures concerning the income, if required before the Indian tax authorities, the taxpayer may showcase the agreement entered into with the publisher, based on computation/ reconciliation of income, agreement/confirmation from the publisher on the quantum, etc., as back-up documents.

Deduction may be claimed in respect of expenses (not like capital expenditure) incurred wholly and exclusively in earning the income chargeable under IOS. Thus, you may deduct the expenses wholly and exclusively incurred in earning the royalty/advertisement income, while computing the taxable income.

Deduction, under section 80QQB (subject to threshold limit of ₹3 lakh) may be considered if the specified conditions are fulfilled (including obtaining a certificate in Form 10CCD from the Indian publisher).