Of all available relays, distance relay attracted more attention for transmission line protection. Whenever fault occurs in power system the actuating quantities contains harmonics, decaying dc components and noise. Faults have to be cleared rapidly in order to prevent damage to the operating devices and personnel. So many filtering algorithms are available for the protection of transmission line but all are having their own merits and demerits. To obtain exact fundamental frequency components for relaying purpose, Smart Discrete Fourier Transform (SDFT) algorithm is proposed. On 17-bus power system, proposed algorithm is tested for speed, accuracy, frequency response, computational burden and capability to distinguish among different types of faults. The results are compared with available filtering algorithms. The power system testing is done with MATLAB and PSCAD/EMTDC environment. The test results shows that proposed SDFT algorithm is better that existing relaying algorithms.