I know there are complaints of many smurf accounts at low levels, but are they technically allowed? Are there any instances of people being banned for using smurf accounts?
Smurfing is not illegal, it is not against the Terms of Service of Smite. However, it is frowned upon by the community, not only in Smite but in many other games because of the huge advantage an experienced player has over newbies.
Smurfing won't get you banned as long as you don't violate the terms of service while playing. If you don't want to discourage new players but also really want to smurf, play supporting champs/gods/heroes/... and try to hold back. Give tips, don't steamroll over them.
I'm somewhat new to Smite, having a level 7 account now. I had went 25-8 in a Joust game, where my teammates weren't very good with their gods and I was basically carrying. We ended up losing that game, however when we got back to the match lobby, the other team started whining at me, calling me very hurtful names and accusing me of Smurfing. They reported me and basically ruined my day.
What I'm trying to say is don't just assume that someone is Smurfing just because they're doing very well in the lower levels. In fact you shouldn't accuse someone at all. Just ignore it and move on.