In a bonanza to the domestic tractor and automobile sector, the government on Thursday fully exempted tractor and tractor components used in-house from production tax even as it entitled automakers to 150 per cent deduction of expenditure on in-house R&D facilities.

Tractors would not now attract 16 per cent production tax or excise duty, Finance Minister P Chidambaram announced in his Budget speech.

Complimenting the Indian automobile industry, the minister said the sector needed encouragement and now automakers would be entitled to a 150 per cent deduction of expenditure if they carried R&D facilities in-house.

Along with the tractors, the components captively consumed for manufacturing tractors would also be exempted from excise duty now.

For the tractor industry, the excise exemption could not have been better timed as the industry had been witnessing slump since 1999-2000. Tractor sales slumped to 170,000 units during 2002 from 270,000 units in 2000.

However, tractor sales went up marginally to 191,000 units last year, largely due to the bountiful rain and good rabi crop.

Apart from giving a fillip to the tractor makers, the waiver of excise duty would give a boost to the farm sector.

Earlier, the two-wheeler industry had demanded write offs for R&D Budget, just on the pattern of the IT and pharmaceutical sectors.