I moved to US on H1B and would continue to do so for the full year. This would make me pass the substantial presence test to file taxes next year as a Resident Alien.

Should I fill form 1040 or 1040NR? Which gives me better options?
Thanks for you help.

“I moved to US on H1B and would continue to do so for the full year. This would make me pass the substantial presence test to file taxes next year as a Resident Alien.”---->Are you married???? If yu are single, then, since you enter the US from INDIA before July 3rd during the tax year 2012 , you will meet the Substantial Presence Test (which requires presence in the U.S, for at least 183 days) and are considered dual-status aliens and must file a dual-status tax return, which, for you, consists of a Form 1040 with a Form 1040NR as an attachment. In most cases, you cannot claim the Standard Deduction, cannot file jointly with your spouse (though you can claim your spouse and children as dependents), cannot claim the Head of Household filing status, and cannot claim either the Earned Income Credit, the education credits or the credit for the elderly or disabled. As you may have guessed, the dual-status return is somewhat complicated and probably should NOT be filed without professional help. If you are married, and your wife is with you on a H-4 visa,then, you can both choose to be treated as resident aliens, regardless of whether you entered the US before or after July 3rd 2012.You should be a non-resident alien at the beginning of the year, 2012;be a resident alien at the end of the tax year,2012;be married at the end of the year. Your spouse must join you in this choice. The results/consequences of this choice are you and your spouse are treated as U.S. resident for the entireyear for income tax purposes;you and your spouse are taxed on all of your world-wide income;you and your spouse must file a joint income tax return for 2012;neither you nor your wife can make this choice again in later tax years, even you are divorced, separated or remarried.
“My question is am I eligible to claim "Foreign Income Exclusion" for the months of Jan - March for the salary back in India?”----->I guess it depends; nonresident aliens do not qualify for the foreign earned income exclusion. You must be either a U.S. citizen or resident alien of the US or a US resident for tax purposes, live and work abroad, and meet certain other qualifications to exclude a specific amount of your foreign earned income. Foreign Earned Income Exclusion, cdoens’t apply as you didn’t meet the Physical Presence Test or Bonafide Residence Test for FEIE. However,you may claim yur foreign tax credit on your tax(es) that you paid to INDIAN taxing authorities on your US re turns, federal/ your state returns, by filing Form 1116 or by itemizing it on Sch A of 1040.You may call the IRS international assistance line for more accurate information in detail.
“Is the FIE rule only for existing US taxpayers moving out to another country or also for anyone moving to US”---->Excellent question. FEIE rule is available for US expats moving out to a foreign country(ies) and foreign residents treated as US residents for US tax purposes.