lakshya that's currently impossible as we do not allow local file uploads at FreeFlarum. Either use AWS S3 storage or other options in FoF Upload, or use the Imgur Image Upload extension. May I ask why do you require such feature? I don't see any specific benefits from hosting it on your domain over hosting it externally - as long as it is accessible from somewhere, it works.
For simple image uploads, I recommend the Imgur extension. If you want more features, such as watermark etc., you may use FoF Upload, assuming that you have access to one of the supported storage options that the extension offers you.