The protection system in a shipboard power system plays a vital role in detecting the fault conditions, isolating the faulted zone and preventing the fault propagation into other vital sections onboard the ship. The protection system should be able to remove faults and restore the service to all the vital loads rapidly. In order to design the protection system, preliminary hardware-in-the-loop testing is done using bus differential relay hardware and a Real Time Digital Simulator (RTDS). In this thesis work, based upon the functionalities of the relay hardware the software differential relay model is designed and simulated using the RSCAD Version 2.00 software suite and RTDS. The software differential relay model developed in RSCAD was tested on a terrestrial power system and a shipboard power system test case for various fault conditions, and its functionalities are validated based upon the hardware-in-the-loop test results.