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Time-domain compensation of capacitive current, derived from differential equation of pi-equivalent circuit of the transmission line, is introduced into a practical phaselet-based current differential protection scheme. First thoughtful analyses with comparisons are carried out for the time-domain compensation algorithm and also both the phasor compensation method and Bergeron transmission line model method. And then Electromagnetic Transients Program (EMTP) simulations are performed for the three compensation methods mentioned above. The simulation results show that this time-domain compensation method can effectively overcome shortcomings of other two methods, for example, disabling compensation for transient capacitive current, or huge computation consumption and high rate sampling which are far beyond the communication and sampling capabilities that the existing relay devices can offer. As a result phaselet algorithm with 5 ms data window can be applied to current differential protection, hence the trip time is reduced, and the selectivity and sensitivity of protection are enhanced. And also protection devices operating with lower sampling frequency and communication rate present are available for this scheme.