Cloud computing environment provisions the supply of computing resources on the basis of demand, as and when needed. It builds upon advances of virtualisation and distributed computing to support cost efficient usage of computing resources, emphasizing on resource scalability and on-demand services. It allows business outcomes to scale up and down their resources based on needs. Managing the customer demand creates the challenges of on demand resource allocation. Further they can make use of company-wide access to applications, based on pay-as-you-go model. Hence there is no need for getting licenses for individual products. Virtual Machine (VM) technology has been employed for resource provisioning. It is expected that using virtualized environment will reduce the average job response time as well as executes the task according to the availability of resources. Effective and dynamic utilization of the resources in cloud can help to balance the load and avoid situations like slow run of systems. In this paper, various resource allocation strategies and their challenges are discussed in detail. It is believed that this paper would benefit both cloud users and researchers in overcoming the challenges faced.