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When the souls are created by GOD for the first time, are they neutral souls since they have not had any good or bad deeds to give them a birth of a animal or an insect vs giving them birth as a good human being?
If they are neutral souls, then what is neutral? Is it a good human being with a normal life a neutral soul?
Souls are not created, they are emanations of the Eternal Being and have no more a beginning than God Himself. Swami Vivekananda writes (Complete Works V6, p 85 and here under Notes of Class Talks and Lectures and Notes on Vedanta - http://cwsv.belurmath.org/volume_6/vol_6_frame.htm):
The Vedas teach that the soul of man is immortal. The body is subject to the law of birth and decay; what grows must of necessity decay. But the indwelling spirit is related to the infinite and eternal life; it never had a beginning and it will never have an end. One of the chief distinctions between the Vedic and Christian religion is that the Christian religion teaches that each human soul had its beginning at its birth into this world; wheras the Vedic religion asserts that the spirit of man is an emanation of the Eternal Being and had no more a beginning than God Himself. Innumerable have been and will be its manifestations in its passage from one personality to another, subject to the great law of spiritual evolution, until its reaches perfection, when there is no more change.
