The correct answer is option 4, Lakshadweep. Lakshadweep is the smallest Union Territory in India in terms of geographical area. It is a group of islands located in the Arabian Sea, off the southwestern coast of India.

Now let`s analyze the other options to understand why they are not the correct answer:

1. Daman and Diu: Daman and Diu is a Union Territory located on the western coast of India. While it is relatively small in size, it is larger than Lakshadweep.

2. Chandigarh: Chandigarh is a Union Territory that serves as the capital of both the states of Punjab and Haryana. Geographically, it is larger than Lakshadweep.

3. Dadra and Nagar Haveli: Dadra and Nagar Haveli is a Union Territory located in western India, near the state of Gujarat. It is larger than Lakshadweep in terms of geographical area.

To conclude, out of the given options, Lakshadweep is the smallest Union Territory in India in terms of geographical area.