The exhaust gas from an internal combustion engine carries away about 30% of the heat of combustion. The energy available in the exit stream of many energy conversion devices goes as waste, if not utilized properly. The major technical constraint that prevents successful implementation of waste heat recovery is due to its intermittent and time mismatched demand and availability of energy. In the present work, a shell and finned tube heat exchanger integrated with an IC engine setup to extract heat from the exhaust gas and a thermal energy storage tank used to store the excess energy available is investigated in detail. A combined sensible and latent heat storage system is designed, fabricated and tested for thermal energy storage using cylindrical phase change material (PCM) capsules. The performance of the engine with and without heat exchanger is evaluated. It is found that nearly 10–15% of fuel power is stored as heat in the combined storage system, which is available at reasonably higher temperature for suitable application. The performance parameters pertaining to the heat exchanger and the storage tank such as amount of heat recovered, heat lost, charging rate, charging efficiency and percentage energy saved are evaluated and reported in this paper.