In India, the electric power transmission and distribution loss is very high, about 7% in transmission and 26% in distribution. Though deployment of automated meter reading system will reduce losses, particularly in distribution, penetration of automated meter reading is low due to high costs involved. World over, the Two-Way Automatic Communications System (TWACS) is the most widely used power line communications technology offering two-way communication between substation and end users. The TWACS introduces disturbance on the power system voltage for short durations near zero-crossing to generate the outbound (from substation to end user) signal. To generate the inbound (from end user to substation) signal, short duration current pulses are introduced, near voltage zero-crossings. Information is generated as a sequential combination of voltage disturbances for the outbound signal and current pulses for the inbound signal. The current study proposes a low-cost modification of the TWACS to reduce voltage and current harmonics. The proposed system has been modelled and simulated using SIMULINK/SIMPOWER Systems. The simulation results show that there is a reduction in voltage harmonics from 0.84 to 0.17% and in current harmonics from 2.07 to 1.10%. © Maxwell Scientific Organization, 2015.