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We know that large amount of data and information should be transmitted through internet during transactions in E-Governance. Smart E-Governance system should deliver speedy, space efficient, cost effective and secure services among other governments and its citizens utilizing benefits of Information and Communication Technologies (ICT). This paper proposes to develop a space efficient and secured data transmission scheme using Modified Huffman algorithm for compression, which will also yield better bandwidth utilization and inner encryption technique with one way hash function SHA (Secured Hash Algorithm) to ensure Message integrity.