Thanks. This is what I did indirectly. After I was rebooted to my previous rom, I manually downloaded full recovery zip rom, and flashed it using twrp. Lost magisk and twrp but update was installed. Installed twrp and magisk again.
---------- Post added at 02:07 AM ---------- Previous post was at 01:59 AM ----------
For anyone who wants to update MIUI:
1. Go to Magisk -> Select "Uninstall" -> Restore Images. Reboot your phone. This restores stock boot image.
2. Go to updater app, and download and install OTA.
3. OTA will fail and phone will reboot.
4. Update again by going to Updater app (This time it downloads full rom instead of OTA), and let it install (it will install from TWRP, no issues)
5. After update, re install TWRP and Magisk. (Because the update installed stock recovery and we uninstalled Magisk in step 1)
OR
1. Go to Magisk -> Select "Uninstall" -> Restore Images. Reboot your phone. This restores stock boot image.
2. Download latest Recovery ROM from MIUI website and flash it using TWRP (no wipes, only flash)
3. After rebooting, flash TWRP and Magisk.
NOTE: If your data partition was not encrypted previously, updated MIUI might attempt to encrypt and you will lose apps (internal storage remains saved). To avoid it, flash DisableForceEncryption_Treble.zip just after flashing Update (DONT REBOOT without flashing it, else encryption takes place)
Link DisableForceEncryption_Treble.zip:
https://forum.xda-developers.com/attachment.php?attachmentid=4702413&d=1549734051