The operational life of oil-paper based power transformers is inherently linked to the condition of their insulation. The electrical, thermal and mechanical stresses to which power transformers are exposed during their uninterrupted service life gradually degrade the insulation, thereby enhancing the risks of complete failure. Recent reports by Central Electrical Authority (CEA), Govt. of India, highlight several instances of power transformer failure due to insulation degradation. Therefore, to minimize the risk of sudden failure and reduce downtime, proper insulation health assessment of the power transformers becomes very important. In this regard, Frequency Domain Spectroscopy (FDS) has gained significant popularity in recent times as an offline non-invasive insulation assessment tool for power transformers and other high-voltage equipment. The basic premise of FDS is that because of the existence of different types of polarization processes in a dielectric material, with changes in excitation frequency, the capacitance and power loss in the material changes. By scanning these capacitance and loss characteristics over a wide frequency range (typically from 1mHz-1kHz) a lot of valuable information regarding the condition of the insulation can be retrieved. Currently, there are very few FDS-based diagnostic equipment commercially available in the market, and they are supplied by foreign-based multi-national organizations. Because of their tight grip on the FDS technology, importing such equipment is a very costly affair. Along with that, the FDS technology and analysis method followed in these diagnostic systems is not fully developed yet. The present commercially available FDS technologies assess the insulation health in power transformers mostly through predicting the moisture content in the paper(solid) part of the insulation. Moisture content above 4% is considered very serious and life-threatening for the power transformer. However, there are other aspects of insulation degradation as well. Because of non-uniform temperature distribution and the presence of temperature hotspots, the insulation system ages in a non-uniform manner with heavy localized degradation in certain regions. The presence of such regions enhances the risk of failure of manifold. At the same time, the current moisture assessment methods based on FDS data need a lot of refinement, as they often overlook the impact of the oil condition and influence of temperature fluctuation during measurements. Additionally, at present, there is no well-established method to predict the remaining lifetime solely from FDS measurements. The primary aim of this work is to develop a diagnostic instrument and expert system based on FDS measurements which will overcome all of the aforementioned limitations and offer affordable and reliable condition monitoring solutions to the power industry. The instrument will possess a clear methodology for insulation assessment for power transformers focusing on the identification of localized degraded regions, accurate assessment of moisture content and immunity to disturbance in ambient temperature during measurement period. It will also provide the remaining lifetime estimation of the insulation.