This, say sources, could be an impediment in the way of exercising the demat option.

Admits a senior official with ICICI, ``We are aware of this problem and realise that TDS sensitive investors may not opt for the demat option.''

How does the customer identification number in the demat option affect an investor? Consider this. An investor had bought 5 regular income bonds worth Rs 50,000 in March, 1997. At a coupon of 15 per cent per annum, his interest income from these bonds works out to Rs 7,500 per year. This person also holds 1000 shares of ICICI and 500 shares of ICICI Bank.

Assuming the two companies maintain their dividend payout at 55 per cent and 10 per cent, respectively, his total dividend income would work out to Rs6,000.

As all these investments will now be clubbed under an indentification number issued to him, TDS will be calculated on his total income of Rs 13,500 (7500 plus 6000). With his income being higher than the non-deductible limit of Rs 12,000, he will have to cough out tax in the form of TDS at around 20 per cent. However, without the identification number (i.e., if the holdings are not clubbed), he can escape TDS as individually the interest and dividend income of Rs 7,500 and Rs 6,000, respectively, is below the non-deductible limit of Rs 12,000. This means most investors who have a large holding in ICICI group may not opt for the demat option and, hence, defeat the whole purpose of the exercise.

In a recent letter to its investors and shareholders, ICICI had offered the option of dematerialising all their holdings in the ICICI group. The letter says, ``ICICI is providing you the option of a free demat facility in respect of your holdings in the ICICI group. You can open a free depository accountthrough ICICI Custodial Services, ICICI Bank or ICICI Investors' Services in Mumbai. You will save on dematerialisation and custodian charges in respect of your holding in the ICICI group.''

However, these freebies may not be sufficient to induce people to opt for the demat option and may prefer to keep their holdings in the physical form.

Thus, ICICI's stated objective of giving a "much-needed boost to the entire process of dematerialisation" may prove to be a mere whimper especially if more and more people realise the gravity of the TDS problem and prefer to keeptheir holdings in the ICICI group in the physical form.