I came to US in feb 2007 on H1. My wife and son joined me in April 2007. Both are on H4 visa. Wife has no SSN nor ITIN. I have following questions

1. Do I need to apply for ITIN for both my wife and son? If so how and which option to select in W7 for both

2. How do I file for my taxes? Jointly

3. Do I get any child credits? And how to claim

1 & 2) If you wish to file jointly with your wife and claim your son as a dependent, you MUST submit Form W-7 for her and your son WITH your 2007 tax return.

Your other option is to file dual-status, but you will STILL need to submit the W-7 in order to claim your wife and son as dependents.

Filing jointly results is a LOWER tax bill.

3) Yes, you WILL qualify to claim the $1,000 Child Tax Credit for your son, but ONLY IF you file jointly.

You WILL have to claim any 2007 income your wife earned, plus the 2007 income you earned while in your home country. You can claim the Foreign Tax Credit (Form 1116) for any taxes paid to your home country, and the tax benefits for filing jointly will probably outweigh any additional tax due on the home country income.

Complete your tax return as resident (Form 1040 or 1040A or 1040EZ) and file as Married Filing Jointly. This will be your best option.
Attach completed forms W7 for your wife and son with your tax return.
Yes, you are supposed to report your (includes your wife) world wide income, and will get credit for taxes paid in India.

Agreed.