TIF is a tool that many cities and other development authorities in the US have been using for a number of years. The purpose of TIF is redevelopment of designated urban areas, provision of roads, water treatment plants, water towers, waste-water treatment plants, capitalise economic development funds, andenhance other urban infrastructure.

It allows an enacting local authority to use tax revenue increases resulting from growth in a designated area's assessed real values to finance the development costs. With TIF, the growth in real assessed value in the TIF district, which would otherwise have been utilised for other purposes, is captured by the enacting city, or country, and used for development. This represents a subsidy for the enacting government, reducing the cost of infrastructure below other funding alternatives. TIF ensures that different taxing jurisdictions in the costs of financing urban development.

In USA, various states have enacted the TIF Act which permits cities and other authorities to establish tax districts. TIF Act regulates use of tax increment financing. The Act also requires cities to develop TIF plans and make annual financial reports on their districts. Taxes on the captured assessment (total assessed value in the TIF minus the base assessment) go to the redevelopment commissionof the enacting government for infrastructure investments, other redevelopment or economic development purposes to support growth in the TIF district. In the USA, TIF revenues are used to pay principal and interest on bonds, making payments on lease or reimbursement to the enacting government for development expenses. Investment projects may include infrastructure within the borders of TIF district or infrastructure that serves the TIF district but is not within its borders. Some cities have created large "project areas" in which increment from TIF districts may be spent. TIF law allows cities to "pool", or spend tax increments from multiple districts within a project area.

In essence TIF may be regarded as a benefit tax which charges the cost of providing public services to those who receive them. For example the direct beneficiaries of the new urban infrastructure are owners of properties in the TIF area. The new roads, lighting, and sewer systems enhance the value of these properties. Part of thisvalue- increase is taxed to pay for the infrastructure, at no additional cost to other taxpayers.

US bond buyers regard TIF-based bonds as riskier than property-tax-based bonds. This is because the revenue depends on growth in the TIF district's assessee valuation, which is not directly controlled by the enacting government. The TIF revenue increment may not be enough to pay the principle and interest on the bond, especially in the first few years after repayment, therefore, can only be sold with a higher interest rate than on other US guaranteeing bonds with other sources of revenue, such as other property taxes or income taxes, to reduce interest rates associated with the bonds or have obtained some other form of credit enhancement to secure the bonds.

In India, TIF can be used by local governments like municipalities and corporations for meeting funding costs of urban infrastructure. The taxes, which can be captured for development are: property tax, municipality tax, vehicle taxes, parking charges,water cess, etc. TIF is an ideal instrument for a country like India, since governments are in a way forced to utilise a portion of the revenues into infrastructure activities. As "captured" revenues can be used only for the purpose they were raised and not for meeting general expenses of the local government, TIF ensures effective channelisation of resources to developmental needs.

TIF has not been tried so far in India. But, certain municipalities have raised market borrowings to meet various developmental needs. TIF is a step ahead, as through legislative intervention, growth is escrowed and utilised for infrastructure development. Entire revenues need not be escrowed as only part of revenues are captured for development and barred for utilising for any other purpose. TIF, as a concept, can also be tried on a macro basis wherein its variants are utilised to meet specific infrastructure needs. For instance a part of growth in excise on petrol and diesel can be captured for utilisation on highwaydevelopment by the centre. An alternative could be the cess variant where a fund created by imposing a small cess on petrol and diesel, can be utilised for development of highways. This methodology of fund raising is transparent and fair since potential users bear part of the cost of providing the infrastructure. It is time the government envisioned playing a more pro-active role in resource raising for infrastructure development.