According to the United Nations, by 2050, nearly 68% of the global population is expected to live in urban areas, compared to 55% in 2020. In India alone, the urban population might reach 600 million by 2036, putting immense pressure on education, infrastructure, water, energy, and housing systems. Greater migration to cities like Delhi, Mumbai, and Bengaluru is causing a lot of obstruction, increasing pollution growth, and high demand for basic needs. These various challenges need ethical and effective management by integrating artificial intelligence into urban governance in ways that are transparent and responsible. Population growth has placed a burden on city infrastructures, often manifesting in overcrowded public places, inadequate housing, and poor waste disposal. Ethical AI tools can support predictive urban planning, optimize traffic flow, and monitor environmental conditions within frameworks that respect privacy and avoid bias. Similarly, educational systems in developing cities reflect important disparities in both access and quality. AI-driven learning platforms will help tailor instruction and resource allocation more effectively, but must be designed to safeguard data security and fairness to avoid reinforcing social inequalities. Most water and electricity utilities in cities are under tremendous pressure due to consumption beyond sustainable levels and a generally aging infrastructure. Some cities, like Chennai, have suffered from serious water shortages, while others are regularly load-shedding during peak demand for electricity. AI will further enhance efficiency through smart grids, predictive maintenance, and water-usage forecasting that guarantee sustainability of urban operations. But ethical deployment shall demand transparency, equity in access, and accountability in decision-making. This chapter examines various challenges associated with smart city, opportunities for people staying in smart city compared to rural regions. The proposed chapter also focuses on arriving at feasible solutions for the challenges faced in the smart city involving the usage of responsible AI technology.