@sundargba , primafacie I think your filing is good and you would not have been exempt ( from counting days ). And also I think US/India tax treaty limits the two year tax free earnings only for the first time ( I will have to refresh my memory on that ).
I am understanding from this that you have filed 2023 return ( MFJ) , included the children as NRA, filed by mail and included the W-7 and the documents needed for issuance of ITIN. You do not have to ask for an extension -- file the stuff on the assumption that the IKTIN will be issued. Generally IRS issues the ITIN retroactively when all the docs are met and when the person is listed on the return ( it is issued ONLY for the purposes of filing a return.
Once 2023 is processed and the KITIN has been issued, then you file an amended return for 2022 to claim the credit.
Does this make sense ?
Namaste ji
pk
