Shunt active power filters (APFs) have emerged as a potential player to address power quality issues imposed by exponentially increasing nonlinear loads.The shunt APF used in this work is essentially a three-phase, three-wire PWM based current controlled voltage source inverter (VSI). Hysteresis current controllers (HCCs) are extensively used for gate pulse generation in converter circuits due to easy implementation and better dynamic response. This work explores the possibility of performance enhancement of shunt APF using a proposed modified HCC based on digital logic. The proposed modified HCC based shunt APF provides significant reduction in switching frequency, switching losses, better mitigation of harmonics and smoother reactive power flow. The dynamic analysis of performance of shunt APF with conventional and modified hysteresis current controller (HCC) is performed under randomly varying non-linear loading conditions. The simulated results confirm the ascendency of the modified HCC scheme over conventional HCC under transient as well as steady state conditions. The modified HCC emerges out to be a better scheme with manifold advantages and enhances the performance of shunt APF tremendously.