My parents are Indian citizens. They have lived with me in 2006 for 7 months and I would like to claim them as dependents on my federal return.
For applying for their ITIN, I need to file for their tax return as per form w-7. But since they do not have any income, should I still file a federal tax return for them?

Your parents do NOT have to file a tax return if they have no income.

As long as you provide more than half of their support, you can claim them as a dependent. Enter their names as listed on their passport in block 6c, but leave the SSN area blank.

Submit a W-7 for each of them, along with a notarized photocopy of their passport. Have each parent their W-7.

Submit the W-7, the passport photocopy and your tax return to the address in the W-7 instructions. The IRS will review the application, issue the ITINs, insert them in the blank SSN areas on your tax return, then process the return.

They will send your parents their ITIN under separate correspondence. Once they get the ITINs, you can then file your state tax return.