The natural numbers are said to be a subset of the real numbers but how is this possible since in the set of natural numbers division is not allowed.
set of natural numbers subset of the set of real numbers
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That the set of natural numbers is a subset of the set of real numbers just means that all natural numbers are also real numbers. You may be thinking of the term subfield, which is a subset that is a field with respect to the same operations as the larger set. Since the set of natural numbers has no multiplicative inverses (or additive for that matter), it is indeed not a subfield of the set of real numbers.
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A set $A$ is said to be a subset of a set $B$ if and only if every member of $A$ is a member of $B$.
Since every natural number is a real number, the set of natural numbers($\Bbb N$) is a subset of the set of real numbers($\Bbb R$). It should be clear from the definition that containment(subset) relationships have nothing to do with the possible binary operations defined on the set.
What you might be thinking of is a group, in which case the set of non-zero real numbers form a group under multiplication but the set of natural numbers do not form a subgroup because you cannot guarantee a multiplicative inverse for every element.
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You mention that, "in the set of natural numbers, division is not allowed". That's not entirely true. We can do lots of division with natural numbers, e.g., $6\div 2=3$. I think you mean that the set of natural numbers is not "closed under division". That's true. There are lots of division problems involving natural numbers whose solution is not a natural number.
The set of real numbers is closed under division, with the usual provision that we don't divide by $0$. The natural numbers $6$ and $5$ are also real numbers, since the naturals are a subset of the reals. Their quotient, $\frac65$, is another real number, one which is not a natural number. There is no problem here.
Being a subset of the real numbers doesn't mean retaining all of the closure properties of real numbers. It's like this: the prime numbers are a subset of the natural numbers, and even though the natural numbers are closed under addition, the prime numbers are not: $3+5=8$. Here, the sum of two primes equals a natural that is not a prime, just like we saw the quotient of two naturals can equal a real that is not a natural.
Real numbers are basically all numbers, decimal, whole, negative, and positive except for imaginary numbers. They include both rational and irrational numbers. A more formal definition is any value that can represent a distance along a line (-ve and positive denoting direction).
Natural numbers are just whole positive numbers. Since whole positive numbers can represent a distance along a line, they are a subset of real numbers.
I really don't understand what division has to do with this.