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For systems with non sinusoidal voltage and current, reactive power calculation using conventional power triangle method is the summation of displacement and distortion reactive power. Under such condition, attempt to make power factor unity, using shunt compensator, overcompensates the system and excess capacitor effectively increases the system current which is not desirable. In this paper, a new method for reactive power compensation using passive components is presented. The proposed approach is based on current minimization and does not need any reactive power definition for compensation. Reactive power demand of the load is calculated in terms of desired shunt capacitor current, using addition of test capacitor in the system. Capacitive current required to minimize the circuit current is calculated from the measured values of change in circuit current and test capacitor current. Mathematical equations are developed for the computation of compensation capacitor under sinusoidal as well as non sinusoidal conditions. The method has been validated by testing under various load conditions with an experimental prototype developed using 8 bit microcontroller ATMega32.