"Does ordinary income include salary paid by employer. "
Yes.

"Then since this comes with tax deducted at source, will I need to apply for a rebate while filing taxes ?"

"need?" Depends on your circumstances. The loss (you didn't say
how many shares of A or B, so we don't have totals) reduces your taxes.

"Or tell my employer about the loss so he does the necessary tax adjustments ?"

You might be able to increase the number of exemptions with your
employer.

" Or carry it over to the next FY ?"

When you file 2001 taxes you might get additional refund, but if you
know you are paying more than you will need to, you can have your
withholding reduced.

Good luck! And yes, I have assumed A and B are stocks in different companies and that therefore wash sale rules do not apply.

Best wishes, Chris