A new Classification can be created under Admin module> Entity tab and Classification tab.
After the Classification has been newly created, we will have to follow the below steps to make them available on a Form.
Go to Admin tab
Click 'Forms' on the left
Create a draft of the Form on which you want that classification by going in the cogwheel and then click on the Draft form to go inside
Click 'More details' option(as shown below)
Locate 'Classification' option and click 'Edit'
Select the Classification from left-hand side and click 'Add' and then click 'Save'
Once this is done, you will have to publish this draft version of the form. The latest revision will then be having the new Classification available to select.