Abstract In this paper, a DSTATCOM based novel multilevel inverter is proposed in which it employs additive and subtractive topology to get higher output levels. This approach significantly reduces the number of power switches needed as compared to existing topology. The present developed multilevel inverter can generate only five voltage levels. With this proposed topology the multilevel inverter can be modified to nine level inverter. Moreover modified hybrid multicarrier Pulse Width Modulation (PWM) technique can be implemented in the proposed multilevel inverter in order to obtain uniform switch utilization and lower THD. An appropriate modulation scheme is presented and also the proposed concept is analyzed through simulation studies and the hardware model also tested. The results show that the proposed DSTATCOM based multilevel inverter has successfully improved the power quality.