Deep Dive into 8 Types of Income (40(1) – 40(8)): What Type is Your Income and How to Deduct Expenses for Maximum Tax Savings?

Deep Dive into 8 Types of Income (40(1) – 40(8)): What Type is Your Income and How to Deduct Expenses for Maximum Tax Savings?

Filing personal income tax is an important responsibility that every income earner must pay attention to. However, confusion often starts with the very first question: "What type of income have we received throughout the year?" Incorrectly identifying income types can lead to choosing the wrong expense deduction method, resulting in miscalculated taxes and potentially leading to penalty assessments.

This article from Orbit Advisory will guide you through a deep dive into all 8 types of assessable income as specified by the Revenue Code, from Section 40(1) to 40(8), with clear examples and summaries of expense deduction rights for both "flat rate" and "actual" methods, helping you understand your tax structure and plan with confidence.

What are the 8 Types of Assessable Income?

According to the Revenue Code, Section 40, the sources of personal income are classified into 8 types to determine different calculation and deduction methods based on the nature of that income. Understanding each type is therefore crucial for tax filing.

Assessable Income Type 1: Employment Income (Section 40(1))

Definition: Income in the form of "employee-employer" relationship where the employee receives compensation for providing work to the employer. Examples:

• Salary, daily/monthly wages
• Bonuses, allowances
• Overtime pay (OT)
• Pensions, retirement benefits
• Housing allowance paid by employer

Expense Deduction: Only flat rate method allowed at 50% of income, but combined total must not exceed 100,000 baht

Assessable Income Type 2: Income from Position or Office (Section 40(2))

Definition: Income from performing work, not in a bound employee-employer status, but rather occasional employment with more independence than Type 1. Examples:

• Brokerage fees
• Consulting fees (not from liberal professions)
• Directors' meeting fees
• Compensation for being a host/presenter

Expense Deduction: Only flat rate method allowed, same as Type 1, at 50% of income but not exceeding 100,000 baht

💡 Orbit's Advice: If you have both Type 1 and Type 2 income in the same tax year, the law specifies that you must combine income from both types and deduct flat rate expenses at 50%, but the total combined amount must not exceed 100,000 baht. You cannot deduct 100,000 baht separately for each type.

Assessable Income Type 3: Royalties (Section 40(3))

Definition: Income from intellectual property or various rights that the owner allows others to use for benefits. Examples:

• Copyright fees (e.g., book, music, computer program copyrights)
• Goodwill fees
• Patent fees, trademark fees
• Annual income from wills or other legal agreements

Expense Deduction: Can choose from 2 methods

1. Flat rate deduction: 50% of income but not exceeding 100,000 baht
2. Actual expense deduction: Must have necessary and reasonable expense documentation

Assessable Income Type 4: Investment Income (Section 40(4))

Definition: Income in the form of returns from investing money in various financial assets. Examples:

• (a) Interest from treasury bills, bonds, bank deposits
• (b) Dividends, profit shares from companies or limited partnerships
• Benefits obtained from business mergers or share transfers

Expense Deduction: Cannot deduct any expenses at all

⚠️ Important Note: Some income types in this category, such as interest and dividends, are already subject to withholding tax (Final Tax). Income earners can choose not to include these with other income at year-end if they determine that not including them results in lower tax liability.

Assessable Income Type 5: Income from Property Leasing (Section 40(5))

Definition: Income in the form of rent or other benefits obtained from leasing property. Examples:

• Rent from houses, condominiums, commercial buildings
• Rent from agricultural land or other purposes
• Car rental fees
• Income from lease-purchase agreement violations or installment sales agreements

Expense Deduction: Can choose from 2 methods

1. Actual expense deduction: Must have complete expense documentation, such as repair costs, insurance premiums, house and land tax
2. Flat rate deduction: Rates vary by property type

• Houses, buildings, structures: 30%
• Land used for agriculture: 20%
• Land not used for agriculture: 15%
• Vehicles: 30%
• Other properties: 10%

Assessable Income Type 6: Income from Liberal Professions (Section 40(6))

Definition: Income from practicing liberal professions in 6 categories specified by law. Examples:

• Medical practice (e.g., doctors, dentists, veterinarians)
• Law (lawyers)
• Engineering (engineers)
• Architecture (architects)
• Accounting (accountants, auditors)
• Fine arts (artists, sculptors)

Expense Deduction: Can choose from 2 methods

1. Actual expense deduction: Must have expense documents related to professional practice
2. Flat rate deduction:

• Medical practice: 60%
• Other 5 liberal professions: 30%

Assessable Income Type 7: Income from Contract Work (Section 40(7))

Definition: Income from contract work where the contractor must invest by providing significant materials besides tools (e.g., contractor purchases building materials themselves). Examples:

• Building construction contracts for houses, buildings
• Furniture contracts where the contractor provides wood and materials themselves

Expense Deduction: Can choose from 2 methods

1. Actual expense deduction
2. Flat rate deduction: 60%

Assessable Income Type 8: Income from Other Businesses (Section 40(8))

Definition: This is the broadest income type, covering income from businesses, commerce, agriculture, industry, transportation, and other activities not specified in Types 1-7. Examples:

• Profits from online product sales, opening restaurants, coffee shops
• Income of public performers, singers
• Income of YouTubers, Influencers
• Farming, orchard operations
• Profits from real estate sales acquired for profit-making purposes

Expense Deduction: Can choose from 2 methods

1. Actual expense deduction: Must prepare income-expense accounts with supporting documentation
2. Flat rate deduction: Rates vary by business type, with more than 40 categories, mostly at 60%, such as:

• Hotels, restaurants, transportation, sales of goods not produced by seller: 60%
• Performer performances: 60% for first 300,000 baht and 40% for excess portion (combined not exceeding 600,000 baht)
• For businesses without specified flat rates, actual expense deduction is required only

💡 Orbit's Advice: The principle for distinguishing between income Types 40(2) and 40(8) primarily looks at the source of income. Income under Section 40(2) = Emphasizes labor and mental effort, focuses on using personal knowledge and abilities, no equipment or office costs Characteristics: Mainly uses own labor, employer provides equipment, no employees Examples: Brokerage fees, meeting fees, freelancers who type data using client's computers

Income under Section 40(8) = Emphasizes business and investment aspects, has investment in tools, materials, or establishes office to receive work Characteristics: Business operation with risks, fixed costs, may have employees to help Examples: Transportation business with own vehicles, cleaning services that bring their own floor polishers and cleaning solutions

Summary Table of Expense Deductions for 8 Income Types

To provide a clearer overview, Orbit Advisory has summarized the information in the table below:

Note: For Types 40(1) and 40(2) combined, maximum expense deduction is 100,000 baht

Summary and Recommendations

Correctly identifying income types is the most important first step in tax filing. For those with Type 40(1) and 40(2) income, calculation is straightforward, but for those with income from Types 40(3) to 40(8), you have a choice between flat rate and actual expense deduction methods.

Our recommendation is: If you have higher actual expenses than the flat rate specified by law and have complete documentation, choosing "actual" expense deduction will help you save more on taxes. However, if you don't have time to organize documents, or your actual expenses are lower, choosing "flat rate" deduction is a more convenient and safer option.

If you have multiple income types or are unsure how to manage your business income and expenses correctly according to tax regulations, consulting with experts is essential. Contact the Orbit Advisory team today to receive advice and tax planning services specifically tailored to you.

Frequently Asked Questions (FAQ)

Q1: How should expenses be deducted if I have multiple income types in the same year?

A: You must calculate expense deductions separately for each income type, then combine the net income after expense deductions from all types to calculate further tax. However, Types 40(1) and 40(2) must be combined first, with total expense deduction not exceeding 100,000 baht.

Q2: Can I change the expense deduction method between flat rate and actual expenses each year?

A: Yes, for income types that allow choice (40(3), 40(5) - 40(8)), you can evaluate each tax year which method provides maximum benefit and use that method for that year's tax filing.

Q3: What type of income is online product sales or being a YouTuber considered?

A: This is considered assessable income Type 8 or Section 40(8), which allows choosing flat rate expense deduction at 60% or actual expense deduction with supporting documentation.

Q4: What are the consequences of choosing the wrong income type?

A: This may cause you to deduct expenses incorrectly (e.g., taking Type 40(2) income for actual expense deduction), resulting in tax calculation lower than it should be. If discovered during audit, you may have to pay back taxes with penalties and additional charges.

Q5: If both husband and wife have salaries (40(1)), how can they each deduct 100,000 baht in expenses?

A: Under current law, if both husband and wife have Type 40(1) or 40(2) income, each party can deduct flat rate expenses at 50% of their own income, not exceeding 100,000 baht separately.