Under Volume & audio output, go to Speaker Audio.
Select HDMI audio, then choose 7.1 uncompressed.

Tip: Using Headsets with Spatial Audio (Dolby Atmos, DTS, Windows Sonic)

While game audio and chat work without limitations when using wired or wireless headsets on Xbox, headsets that use Dolby Atmos or other spatial audio formats may require a quick workaround. If you’re unable to select 7.1 uncompressed under Speaker Audio, follow the steps below to enable 7.1 surround sound for Audio Radar while maintaining spatial audio for your headset.

Workaround for Headsets Using Dolby Atmos or Spatial Audio:

Unplug/disconnect your headset from the system.
Navigate to Settings > General > Volume & audio output and set HDMI audio to 7.1 uncompressed.
Complete any other necessary audio configurations in settings.
Back out of Xbox settings completely to ensure changes are saved.
Start or enter a game.
Plug your headset back in—this should allow Audio Radar to receive 7.1 surround sound, while your headset continues to use spatial audio.

Note: If this workaround does not work for your specific headset model, check your headset’s settings or refer to the manufacturer’s documentation for additional options.

XBOX Setup Guide