Differential protection is the unit protection system which is applied to protect a particular unit of power systems. Unit is known as zone in protection terminology which is equivalent to simple electrical node. In recent time, low impedance current differential protection schemes based on percentage restrained characteristics are widely used in power systems to protect busbar systems. The main application issue of these schemes is mis-operation due to current transformer (CT) saturation during close-in external faults. Researchers have suggested various solution of this problem; however, individually they are not sufficient to puzzle out all mis-operational scenarios. This thesis presents a new bus differential algorithm by defining alternative partial operating current characteristics of a differential protection zone and investigating its performance for all practical bus faults. Mathematical model of partial operating current and operating principle of the proposed bus differential relay are described in details. A CT saturation detection algorithm which includes fast and late CT saturation detection techniques is incorporated in relay design to increase the sensitivity of partial operating current based internal-external fault discriminator for high impedance internal faults. Performance of the proposed relay is validated by an extensive test considering all possible fault scenarios.