The pay is obviously less than what I will be getting in US. Should I
accept the offer ?.
Why is it so obvious? They should pay you the same either way, unless you will be working less or being less productive.
Whether you should accept or not is really up to you.
What If they don't issue H1B because they would be getting the work
done in alot cheaper when I am here.
What if you work and they don't pay? Do you trust them? And what's the worst that can happen? Worst case - you stay where you are and start looking for a new job. Can you handle it?
And one more thing, they say they can only apply for Visa in next
Fiscal year i,e October because the Visa cap is closed, is it true ?
Yes, it is true. The next visa cap will be open next April, with start date of October 1st. They should probably apply on April 1st, since the demand is overwhelming.