Ashu,
The current and latest release for Solution Manager is SP13. A lot has changed and added new to SP13. Please go through below link for the upgrade guide.
The upgrade for Solution Manager happens via SUM tool and you will require MOPZ to create an xml file for the same.
I wont be able to suggest which level should you upgrade to as i am not sure what all is configured in your system and could possibly effect the already existing scenarios.
SAP Solution Manager 7.1 – SAP Help Portal Page
Hope this helps
Regards
Aditya