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Option 1: Daman - Daman is a separate city and district located near Diu, but it is not an island. Therefore, option 1 is not the correct answer.
Option 2: Goa - Goa is another coastal state in India, known for its beaches, but it is not connected to Diu. Hence, option 2 is also not the correct answer.
Option 3: Gujarat - Diu is indeed an island located off the coast of Gujarat. It is a part of the union territory of Daman and Diu, which is administered by the government of Gujarat. Therefore, option 3 is the correct answer.
Option 4: Maharashtra - Maharashtra is a neighboring state to Gujarat, but it does not have any direct connection to Diu. Hence, option 4 is not the correct answer.
In conclusion, the correct answer is option 3 - Gujarat. Diu is an island off the coast of Gujarat.