Today’s power system demands improved power factor in order to harness various advantages associated with improved power factor. Till date, various methods have been deployed to improve the power factor of the power system. This paper mainly focuses on a novel methodology for reactive power compensation and thereby power factor improvement at the load end. This paper presents a novel approach of capacitance grading for achieving fine-tuning of power factor. The concept for automatic power factor correction by fine-tuning of graded capacitors with the help of microcontroller and binary logic is proposed, simulated, and implemented. The method presented is of iterative nature and is cost competitive over other deployed methods. An algorithm is developed and a model is made to deploy the concept of iteration with binary logic. The same is tested on an induction motor and results obtained are analyzed.