VAT, or Value Added Tax, is a consumption tax levied on the value added to goods and services at each stage of production or distribution. The main types of VAT include:
1. **Output VAT**: Charged on sales of goods and services.
2. **Input VAT**: Paid on purchases of goods and services.
In Tally 7.2, VAT is managed by enabling the VAT feature in the software. Users can record sales and purchases, and Tally automatically calculates the output and input VAT, generating reports for filing returns.