I arrived in United States in March 2006 on H1B and my wife joined me in October 2006 as H4. I am aware that I am a non resident until March and then became resident alien for the remaining year. Since my wife joined me in October she is a non resident alien and can I claim her on my taxes as an exemption. Am I allowed to use standard deduction or itemzied deduction.

You can file as a dual-status alien and you can claim your wife as a dependent on that return.

OR

You can file jointly with your wife and you BOTH choose to be treated as resident aliens for ALL of 2006. This makes ALL of your 2006 world-wide income subject to U.S. taxes, but it is likely the benefits of filing jointly will ,more than offset any additional taxes due.