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This paper proposes a modified four leg Distribution Static Compensator (DSTATCOM) topology for compensation of unbalanced and nonlinear loads in three phase four wire system. This proposed modified topology uses a capacitor connected in series with the interface inductor at the point of common coupling (PCC). This Modified topology requires a lower value of dc link voltage (Vdcref) across the dc storage capacitor of voltage source inverter (VSI) for compensation of source currents, when compared with the basic four leg DSTATCOM topology. The reference filter currents are generated using instantaneous symmetrical component theory and are tracked using hysteresis current control technique. A detailed simulation study to compare the performances of basic and modified topologies are carried out using PSCAD 4.2.1.