Abstract: The transformer is one of the important elements of electrical power system. So, it is required to provide the good protection scheme for transformer, which enhance the reliability & economy of the system. There are many methods available for the protection of transformer out of which differential protection is the most commonly used method. It is observed that the conventional differential protection scheme mal-operates during the magnetizing inrush current. The mal-operation of differential relay will affect the continuity of supply to customer and hence the economy of our system. To avoid such type of mal-operation of the relays, proper discrimination between the magnetising inrush current and fault current is required. This paper presents Teager Energy Operator (TEO) and Statistical parameters based novel approach for the discrimination between the magnetizing inrush current and the internal fault current of a transformer. In this paper, TEO of the differential current of the transformer is calculated and compared with its threshold value to detect the abnormal condition. When TEO is more than threshold, statistical parameters like variance & standard deviation are calculated and if the calculated value is more than the threshold then it’s an internal fault condition and hence relay gives the trip signal. Else relay does not issue the trip signal. The suggested algorithm is tested using the experimental data. The results demonstrated that the suggested algorithms are capable of accurately differentiating between the transformer's internal fault current and inrush current.