Cost effectiveness is one of the reasons behind the popularity of Cloud. By effective resource utilization cost can be further reduced and resource wastage can be minimized. The application requirement may vary over time depending on many factors (for instance load on the application); user may run different types of application (a simple MS word to complex HPC application) in a VM. In such cases if the VM instance capacity is fixed there is a high possibility of mismatch between the VM capacity and application resource requirement. If the VM capacity is more than the application resource requirement then resource will be wasted; if the VM capacity is less than the application resource requirement then the application performance will degrade. To address these issues we are proposing threshold based auto scaling of virtual machines in which VMs will be dynamically scaled based on the application resource utilization (CPU and Memory). Using our approach effective resource utilization can be achieved.