In the recent power system scenario, the concept of microgrid is evolving rapidly. The architecture should be robust enough to cater the complexity of integration of distributed generation sources, demand-side management, and storage. The fast growth of embedded generation with other advanced power electronic interfaces and components along with energy storage devices change the operating pattern of the integrated power system scenario. In this context, protection is the vital aspect for qualitative uninterrupted power and making the system resilient to adverse, and faulty conditions. Many associated issues, particularly related to AC microgrid systems like the large difference in the short-circuit level between integrated and isolated mode of operation, bidirectional power flow, unsynchronized reclosing, the blindness of protection, lack of natural zero-crossing current, and false tripping are needed to be focused. In light of the above factors, it motivates us to survey the previous research works on the existing protection strategies to redesign and present the critical analysis of the predicted protection issues of microgrid protection with upcoming advanced technology and methodology. This article presents a critical review of the issues and protection schemes for the DG integrated AC microgrid extensively. Here, the merits, and demerits of each protection scheme, and visible possibilities for any advancement in protection strategies to enhance the reliability, selectivity, and security of AC microgrid is emphasized keeping in mind the different connections and configurations. In addition, this work also focuses on integrating the intelligent approaches/devices that help to elevate the current protection schemes to be smarter and efficient.