Point to be noted is that capital gains can only be set off against capital losses and not against losses or gains of any other head. Short term losses can be set off against short and long term gains. However, long term losses can only be set off against long term gains.

You as a taxpayer can earn income from salary, house property (rental income), business or profession, capital gains, income from other sources (like interest on FD/RD) etc. There cannot be a loss from salary and income from other sources. However, you could suffer losses under other heads of income such as loss from house property, business loss and capital loss. Most of you are familiar with the concept of loss from house property. When you show income on self-occupied property, you are allowed to adjust up to Rs.2 lakhs as interest on home loan paid under Section 24 of the Income Tax Act. This is shown as loss on house property and can be reduced from your total income. Capital gains have to be treated separately only.