I have bought "Windows Web Server 2008". I am trying to setup incoming VPN connection but don't find the option for it.
Is this version of Windows capable of accepting incoming VPN connections?
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Web Edition doesn't support being a VPN server. If you look at Microsoft's Windows Server 2008 "Edition Comparison by Server Role", it doesn't include "Network Policy and Access Services", which includes "Routing and Remote Access Services", which is what provides VPN server capability. Sorry.
To set up VPN/RAS you need the Network Policy and Access Services role which is not included with Windows Server 2008 Web edition.
You could possibly find some other third party VPN solution to use on the server, but the standard MS RAS capabilities will not be available.