Take a backup of your htdocs and data folder (subfolder of MySQL folder), reinstall upgraded version and replace those folders.

Note: In case you have changed config files like PHP (php.ini), Apache (httpd.conf) or any other, please take back up of those files as well and replace them with newly installed version.

You can go through the following link as it helped me, should work for you as well. http://hype-free.blogspot.com/2007/07/updating-php-in-xampp-for-windows.html

Realizing that my answer helped couple of users, here is the edit from original link:

Edit:

First of all Always backup your data.

1. Download the latest binary version of PHP (make sure to get the .zip package not the installer)
2. De-archive it to a directory
3. Overwrite the contents of directory in the php subfolder of your XAMPP installation directory.
4. Overwrite the contents of the directory apache\bin with the newer versions.
5. Now the trick: take the files which have a '_2' in their names (for example php5apache2_2.dll or php5apache2_2_filter.dll), copy them in the apache\bin subdirectory and remove the '_2' part, overwriting the existing files. This is necessary because by XAMPP uses Apache version 2.2 and the files with the 2 prefix are built for Apache 2.0, so you must take the files build for the newer version (which has a different plugin interface) and rename them in the filenames XAMPP expects.

NOTE: there are two directories to be updated with new version of files, namely php sub-directory and apache/bin sub-directory, inside XAMPP installation.

I think you need to actually download and install XAMPP with the desired PHP version. I dont think you can just upgrade the components of XAMPP individually unless there is a facility provided for this within XAMPP itself.

I've updated the PHP to 8 by downloading the files from here. https://sourceforge.net/projects/xampp/files/XAMPP%20Windows/8.0.6/

Uploaded it to the xampp directory by renaming the previous PHP folder to something else. But, then got the following error while starting the apache.

Error: Apache shutdown unexpectedly.
This may be due to a blocked port, missing dependencies,
improper privileges, a crash, or a shutdown by another method.
Press the Logs button to view error logs and check
the Windows Event Viewer for more clues
If you need more help, copy and post this
entire log window on the forums

After that, I've replaced the apache directory as well from the xampp folder with a newer version which I've downloaded, it sorted the issue out.

Got another problem while trying to access the phpmyadmin page, then again renamed the previous phpmyadmin folder from the xampp directory and uploaded the new version from the downloaded files. It's fixed the issue.

To update with latest PHP version in xampp without losing your htdocs data you need to download the zip file of your desired version of PHP from sourceforge.net, then copy the PHP folder from the extracted file and paste it into your xampp folder.

NOTE: Don't forget to rename the old PHP file folder which already exists.

Then simply edit your php.ini file with the current path to reach the right PHP folder

After that, you need to re-run your xampp.

I found a video on youtube which can help you. how to update php version in xampp

Note

In order to run apache server after upgradation PHP 7.4.x requires Microsoft Visual C++ Redistributable for Visual Studio 2019 which can be downloaded here under the heading Other Tools and Frameworks. otherwise apache server won't start.

Upgrading to PHP 8

It's not a good idea to just swap out an older version of PHP in XAMPP to a new major version like PHP 8, as there's the possibility it could introduce lots of potential problems and incompatibilities due to tools, configurations and codebases that weren't designed to play together.

Instead, it's a much better idea in the long run to just update to the latest version of XAMPP itself - this will upgrade both PHP and any other binaries that PHP needs to work with, including MySQL and PHPMyAdmin, to versions that are designed to be compatible with PHP 8. This way you also take more complete advantage of the security and speed advantages of updating to newer versions - for example, modern versions of PHPMyAdmin are miles faster and much less buggy than versions that are a few years old.

Unfortunately there is no automatic way to update XAMPP, but it can be accomplished manually with very little effort - simply follow the steps below.

How to update XAMPP to PHP 8 properly

1. Rename your current, working XAMPP folder (located at C:\XAMPP by default) to XAMPP.old or something similar to indicate it's the old version.
2. Download the XAMPP installer for the version of XAMPP/PHP you want (note that the XAMPP versions mirror PHP versions to make it easier to know which PHP version you're getting), and install it to C:XAMPP
3. Go through the install process and feel free to deselect any software you don't need, like Mercury Mail and Tomcat, to prevent them cluttering up the XAMPP folder

Once the install is finished, copy the following folders from your old installation in C:\XAMPP.old to your new installation in C:\XAMPP:

mysql\data
mysql\backup
Any website or project folders you have in htdocs\

You've now moved all of your important data over from your last installation, so if you didn't customise your XAMPP installation a lot or don't care about moving your customisations over, you can stop at this stage and you should have a fully-working installation of XAMPP running on PHP 8.

If you do want to keep any configuration changes you've made

We're gonna be moving over all of the main configuration files from your old XAMPP installation at C:\XAMPP.old.

First is the php\php.ini file - you should not just copy this file over, as it contains configuration options that are very specific to the current PHP installation. If you've made changes to it or you're not sure whether you have, you can use a diff tool like git diff --color -y OLDFILE NEWFILE to compare your old php.ini file with the one you just installed - if you see any lines in red, these are the lines you should copy to your C:\XAMPP\php.ini file.

The rest of the files can be simply copied over, if you think you've made any changes to them.

apache\httpd.conf
apache\conf\extra\httpd-ssl.conf
apache\conf\extra\httpd-xampp.conf
apache\conf\extra\httpd-vhosts.conf

Realistically, these will be the same across XAMPP installations so copying them over anyway shouldn't hurt anything - but it's always a good idea to keep around the C:\XAMPP.old folder for a few weeks while you're testing out the new installation.

Finally, if you ever set up SSH on your XAMPP server you can copy the keys in apache\conf\ssl.key\ to avoid having to set these up again.

You can now restart your server to confirm that your new versions of Apache and MySQL are working, and visit localhost/phpmyadmin to confirm that the latest version of PHPMyAdmin has been installed successfully.