I have resolved this issue. If anyone wants to do remote development and debugging, follow below steps:

1. Install remote ssh extension in VS code
2. Once installed, you will find a green icon on the bottom left corner in vs code which allows us to connect to the remote machine.
3. Connect to the remote machine using the standard ssh command. Alternatively, you can use ssh-keygen to generate a public-private key if you don't want to use the password at every prompt.
4. Once you are connected to remote machine, you can open the file explorer and create any python file. When you will save this, it will get saved in your remote machine. This way you are using your machine to remotely develop code on another remote machine.
5. Good thing about vs code is that it selects the remote machine's python interpreter so all the packages which you have installed on your remote machine will work with IntelliSense.
6. In order to debug the code, we will use debugpy. Install this on both machine (remote & local)
7. On your remote machine, run below command:

python3 -m debugpy --listen 1.2.3.4:5678 --wait-for-client app.py

here 1.2.3.4 is the IP of remote machine. This will start a remote debugger which will wait for a clients connection.

8. On your local machine, in VS code open Run & Debug, add a configuration of Python: Remote Attach. Make sure that launch.json has the host as the IP of your remote machine and port as 5678.
9. Now start debugging as normal and you will notice the code will break at first breakpoint and from here you can proceed normally as we used to do in local debugging process.

TBH, this is best feature VS code has because most of the software allows you to do remote development which is nothing but just a normal SSH but remote debugging gives you more control. I was doing some python project on Raspberry Pi and obviously cannot install VS code or pycharm on it. But with this feature now I can easily develop the code using Pi's python interpreter and debug it as well.

If anyone is having any issues, let me know. Happy to help.

You need to put the remote ip address in both ptvsd.enable_attach("my_secret", address = ('remote_ip_address', 3000)) and in launch.json:

{
  "name": "Attach (Remote Debug)",
  "type": "python",
  "request": "attach",
  "localRoot": "${workspaceFolder}",
  "remoteRoot": "/home/user1/scripts/",
  "port": 3000,
  "secret": "my_secret",
  "host": "remote_ip_address" 
}

You also need to change the remoteRoot value to the path of the directory where the script is located in the remote machine (e.g. /home/user1/scripts/).

Finally, open an ssh connection: ssh -L 3000:localhost:3000, run your script in the remote machine and attach the debugger in the local machine.