I am having Window 7 installed on my laptop. After installing several updates and the OS, at present the latest window 7 update is asking for 550 MB of Hard drive space. I want to know how much apce should be kept for updates ? Can I remove old security updates to save space? I have given more than 40 GB of space to the OS till date.
It sounds like to me you need a larger hard drive for your laptop. So exactly how much space is needed? I'm not sure how to answer that question except to say since space is an issue for you I would focus on only installing critical updates. Keep in mind that as new updates are released you're only going to run into the same problem in regards to space. I would also advise against uninstalling any security updates you have already installed... after all they are there for a reason.
Win7 64bit only takes ~18-30GB of HDD space (depending on how much ram/virtural memory you have). A typical 64bit windows install is 22GB; mine is at 23GB (Win8 32bit only takes 7GB! It is so tiny!)
Most of these updates are replacing old code, not adding to the code, so normally the update will not really add much HDD use. Do not remove or alter Windows unless you know exactly what you are doing. You can seriously screw up the registry, or open up a vulnerability that MS has fixed. You can delete the old installer downloads (see CCleaner below), but do not un-apply the fixes!
That being said; Never over-fill your system drive past ~80%. For HDDs you will have drastically lower performance as you get towards the center of the drive, and defragmenting quickly becomes impossible as the drive fills up. For SSDs you run into garbage collection issues, and you will start writing to the same portions of memory all the time which will hammer the drive and cause premature wearing. It is fine to fill the drive completely for a limited time (like for a specific project), but for general day-to-day use you want to keep a fair amount of free space available for updates, downloads, caches, and future expand-ability.
To free up disc space:
1) remove old/unused programs and files (specifically bulk files like video which take insane amounts of space)
2) run a program like CCleaner to remove temp files and system caches (also has a great registry cleaner)
3) disable virtual memory, and then delete the file (not suggested unless you are a normal user with 4+GB of ram, or a power user with 8+GB of ram). This frees up disc space equal to the amount of system ram you have installed (in my case it saved 16GB of SSD space). If you have less system ram, then consider limiting the virtual memory instead of removing it entirely.
4) invest in a 2nd HDD to store your documents (this should be done anyways as most of the time your system drive will fail because it is used more often, and is more prone to viruses and other software related issues. A 2nd drive allows your documents to be more portable and resilient against system drive replacements or reformats.
5) If in a laptop then consider getting a larger drive, then use software such as Acronis, or some software put out by EaseUS to clone over to the new drive without having to start over from scratch.