The guidelines for iOS and the Mac App Store state that demo versions of apps are not allowed.
As far as I can tell, a lite version is (most of the time) just a demo with an IAP for the full version (so as to retain progress)
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A “demo” app is traditionally a fully functional app that only runs for a limited time or doesn’t let you save anything, or is crippled in some way to make it useless beyond being a demo.
A “lite” app is fully functional in its own right. If a user never upgrades to the full version, the lite app must still do something useful, even if it is fairly limited. One critical thing Apple will look at is no part of the UI must be disabled in a lite app. If a bit of functionality doesn’t work in the lite version, then it must not be part of the UI at all.
In a lite app you may have a button or other UI element that lets the user upgrade. If the user reaches some limit imposed by the lite version, you may inform the user that they can upgrade if they wish. But never prompt the user out of the blue to upgrade.
A lite app does not require IAP. You can create a pair of apps (lite/paid) instead if you wish.
If you decide to use a single app with IAP to upgrade, don’t call the app “Lite”. Don’t put “lite” in the icon. Because if you do, your customers will hate you once they upgrade the app and it still says “lite” anywhere.