c - Which is the better way to declare dummy variables for nested loops?

Neither approach is preferred.

Two common coding guidelines are (1) to ensure that no variable exists any longer than it needs to and (2) don't use a variable for more than one thing. Following such guidelines reduces (often, but not always, eliminates) accidental usage of a variable in a way that is not intended, and therefore helps avoid subtle programming errors.

In your first case, both i and j continue to exist until the end of the enclosing scope - which means they exist after the loops are complete. This maximises the chances of subsequent code (in that enclosing scope) accidentally reusing i or j for another purpose (e.g. when the intent is to use another variable). Such bugs are often hard to find.

The second case has the same problem, except with i only. Even one variable with such a problem is bad news though.

I'd probably use a construct like

// unintentionally using i or j here will cause a compilation error
for (int i = 0; i < numRows; i++)
{
    // unintentionally using j here will cause a compilation error
    for (int j = 0; j < numCols; j++)
    {
       //
    }
    // unintentionally using j here will cause a compilation error
}
// unintentionally using i or j here will cause a compilation error

(The comments I've inserted to make the point make this more unreadable, but such comments will not normally be needed in practice).

This ensures that neither i not j exist outside the outer loop. It also means that j cannot be accidentally used in the outer loop. Practically, it is easy to type i when j is intended (and vice versa) - for example, they are close together on a QWERTY keyboard. i and j also look quite similar visually, so visual code inspections often miss such errors. However, using an approach like this, the COMPILER will detect such typos. Given a choice, it is better to have a compiler pick up errors rather than for a human to have trouble finding them.

Of course, this doesn't prevent misuse or interchange of i and j in the inner loop - but that's one reason that guidelines often encourage use of more informative names than i and j - misuse of visually different names is easier for a mere mortal to detect.