Reliable and dedicated protection of the transformer is the main requirement in the power system due to the supervision of a highly expensive equipment transformer. Nonlinear characteristics of the transformer give mysterious behaviour for the period of inrush and Current transformer saturation conditions. As a stagnant and electro-magnetic device, a transformer is mainly affected by self-inrush. The saturation of the core itself is a very critical situation that becomes a hindrance for fault discrimination. This article involves the elaboration of the effect of inrush on transformer operation, past research practices for the discrimination of inrush with the faulty condition, and a definite method to recognise inrush and fault condition of the transformer. More than 50 reputed journal articles, various book chapters, and books with research thesis thoroughly studied to review the inrush and fault discrimination conditions. A comparative analysis is prepared to suggest the identification of transformer abnormalities. Moreover, a total harmonics distortion (THD)-based solution proposed for discrimination of the inrush condition from fault and other abnormal conditions using the short time Fourier transform technique. Hardware setup for 2 kVA transformer developed in the laboratory to study different inrush phenomena and altered fault conditions. Simulation and hardware results show various effects of inrush and fault with individual harmonic and THD-based analysis. The collection of real-time data is further used based on laboratory hardware setup to enhance real-time protection schemes for power transformers.This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.