Abstract: When a fault occurs outside the transformer zone,the differential protection misoperation will occur due to saturation of the current sensor. In order to solve this problem,this paper proposes a time difference method based on wavelet analysis as a criterion for determining the internal and external faults of the transformer differential protection. First,the effect of saturation of the current transformer on the differential protection of the transformer is analyzed. Second,the method of wavelet for signal singularity detection is studied using the principle of modulus maximum,and appropriate threshold rules are selected for de-noise processing for noise-containing signals. Third,the wavelet modulus maximum value principle is used to determine the start time of the fault and the time of the occurrence of the differential current. Finally,a new criterion based on the integrated negative sequence component to remove the differential protection lockout in the course of transferring of an out-of-zone fault to an inside-zone fault for transformers.transformer faults transferring from outside the zone to inside,and simulations verify the effectiveness of the method.