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The bill was introduced in the Lok Sabha by Union Minister of State for Home G Kishan Reddy.
The move comes three months after Jammu and Kashmir was divided into two UTs — Jammu and Kashmir, and Ladakh.
On November 22, Officials said the merger of the two UTs, located along the western coast near Gujarat, will be done for better administration and check duplications of various work.
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Dadra and Nagar Haveli has just one district while Daman and Diu has two.
The merged UT is likely to be named as Dadra, Nagar Haveli, Daman and Diu, and its headquarters could be Daman and Diu.
On August 5, the central government had announced the abrogation of the special status given to Jammu and Kashmir under Article 370 and its bifurcation into two UTs.
The country currently has nine UTs after the creation of the UTs of Jammu and Kashmir, and Ladakh. However, with the merger of Daman and Diu, and Dadra and Nagar Haveli, the number of UTs will come down to eight.