Hello, @Arunkumar Selvaraj !
How do I update existing VMs from Windows 10 to Windows 11?
As @Marcin Policht has pointed out, there is documentation for in-place upgrades however this guidance is being phased out due to an increase in reported issues related to this scenario. While you may be able to complete the upgrade, in-place upgrades are no longer recommended as they may not be compatible with newer Azure features. The current plan is to update the documentation to reflect this new guidance.
If you would like to upgrade from one OS version to another, the current recommendation is to create a new VM with the OS/image that you would like (Windows 11 in this case) and migrate your existing data to the new VM.
A recommended best practice is to keep data on a separate disk (and not the OS). If you are currently doing that it will make migration much easier and if not, this may be a good opportunity to establish this best practice as it provides a variety of benefits (including backup optimization).
Additional Reading:
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