Design app that supports both iOS8 and iOS7

Suppose I want to design a master detail application, Xcode6 master-detail project template for universal app includes UISplitViewController and splitViewController is new in iOS8. I want to support app for iOS7 also.

In general

What is the best way to design an universal app using Xcode6 storyboard that support both iOS8 and iOS7 ?
Is it better to use separate story board for different OS version ?
What are the best practices we should follow to make app compatible with both OS?

The 'best way' to create such an app will likely depend on what exactly your app needs to be able to do. Some ways will be better than others depending on any special behavior needed.

But it is definitely possible to use a single Universal storyboard in Xcode 6 that uses Size Classes and still target iOS 7, both iPhone and iPad, using UISplitViewController. I have successfully done just that. It did take a lot of work to ensure it worked properly and looked consistent on iOS 7 and 8. You have to be a little careful when it comes to performing the various new adaptive segues, as that is a huge difference between iOS 7 and 8. For example, detecting when you have a popover is going to require some work for the two different OSes, handling unwind segues will require some special handling, etc. It will require a lot of testing. Dedicate time to testing the iPhone 6 Plus - in landscape it will show both the master and detail on screen, but you can have control over that.

After going through that experience, I would much rather implement a single storyboard as opposed to two storyboards, one for each OS, and definitely stay away from creating a storyboard for each OS and then one for each device type.

You'll want to read up on the SDK Compatibility Guide to learn how to detect API availability. If you implement an API that doesn't exist on iOS 7 the app will crash, so you need to only run that code if that function exists for the OS the app is running on. For example, you may want to utilize the new UIBlurEffect API, but that doesn't exist on iOS 7. Gain an understanding of what deprecation means, and knowing what has changed in iOS 8 will greatly help. For example, the rotation APIs are deprecated in favor of Size Class trait collections, but those aren't available on iOS 7 so you'll need to continue to use the deprecated rotation API.

Also check out some WWDC videos from this year. They have a couple videos that discuss the new adaptive segues and Universal storyboards. Note that these storyboards ARE backwards compatible with iOS 7, but there are some size classes that aren't made available on iOS 7. See this question and the answer I provided for more information. WWDC videos from previous years also discuss how one can support multiple OSes, progressive enhancement, etc.

And of course when you have questions/problems Stack Overflow is a great resource. A lot of the questions I've posted in the past few months are related to this topic exactly, how to modify UISplitViewController behavior, obtain support for both OSes, using a single storyboard and the new adaptive segues, etc. You may wish to read through those to get an idea of what you can expect to run into when developing an app in the same fashion.