The deterioration in power quality due to the increase in non linear loads has sparked a new interest in the filtering techniques used in transmission and distribution systems. Unlike passive filters, active filters are adaptable to rapidly changing source impedance and provide the necessary harmonic compensation for varying non-linear loads. This thesis models a Voltage Source Converter (VSC) based shunt active filter (SAF) to filter harmonics due to large non linear loads. SAF compensates the harmonics by injecting a compensating current which is equal in magnitude but opposite in phase to the disturbance in the system. The power circuit of this SAF consists of a three-phase VSC and the switching signals for this converter is generated by hysteresis based current modulation method. The controller uses the sinusoidal current control strategy of the generalized instantaneous p-q control theory to calculate the reference compensating current. Proposed SAF is simulated using EMTP-RV simulation package under steady state and dynamic conditions and its effectiveness in mitigating harmonics is tested. The stability and response of the SAF is also tested satisfactorily under transient load and severe AC / DC fault conditions. / UOIT