This paper presents the improvement of power quality in three phase four wire system with balanced and unbalanced source condition based on three phase shunt active power filter. The PI controller is used to regulate the DC link voltage. The synchronous reference frame (SRF) method is used for extracting reference current. The PWM controller is used to generate gate pulses and applied to three phase VSI based shunt active power filter with split capacitor topology. The main aim of this paper is to reduce the total harmonic distortion (THD) in the source current. The MATLAB/Simulink environment is used to model for three phase source and nonlinear load is connected to the system.