The Internet of Things (IoT) has gained significant recognition to become a novel sensing paradigm to interact with the physical world in this Industry 4.0 era. The IoTs are being used in many diverse applications that are part of our life and is growing to become the global digital nervous systems. It is quite evident that in the near future, hundreds of millions of individuals and businesses with billions will have smart-sensors and advanced communication technology, and these things will expand the boundaries of current systems. This will result in a potential change in the way we work, learn, innovate, live and entertain. The heterogeneous smart sensors within the Internet of Things are indispensable parts, which capture the raw data from the physical world by being the first port of contact. Often the sensors within the IoT are deployed or installed in harsh environments. This inevitably means that the sensors are prone to failure, malfunction, rapid attrition, malicious attacks, theft and tampering. All of these conditions cause the sensors within the IoT to produce unusual and erroneous readings, often known as outliers. Much of the current research has been done in developing the sensor outlier and fault detection models exclusively for the Wireless Sensor Networks (WSN), and adequate research has not been done so far in the context of the IoT. Wireless sensor network’s operational framework differ greatly when compared to IoT’s operational framework, using some of the existing models developed for WSN cannot be used on IoT’s for detecting outliers and faults. Sensor faults and outlier detection is very crucial in the IoT to detect the high probability of erroneous reading or data corruption, thereby ensuring the quality of the data collected by sensors. The data collected by sensors are initially pre-processed to be transformed into information and when Artificially Intelligent (AI), Machine Learning (ML) models are further used by the IoT, the information is further processed into applications and processes. Any faulty, erroneous, corrupted sensor readings corrupt the trained models, which thereby produces abnormal processes or outliers that are significantly distinct from the normal behavioural processes of a system. In this paper, we present a comprehensive review of the detecting sensor faults, anomalies, outliers in the Internet of Things and the challenges. A comprehensive guideline to select an adequate outlier detection model for the sensors in the IoT context for various applications is discussed.