In India the residuary powers to legislate any matter that is NOT mentioned in the three federal lists lies with the __________.

union legislature

The correct answer is Option 2 - union legislature

In India, the residuary powers to legislate on any matter that is NOT mentioned in the three federal lists lies with the  Central Government (or Union Government).
More specifically, the Parliament has the exclusive power to make laws on these residuary subjects  [Article 248 of the Constitution of India].