In thermo-electric power generation an exhaust heat exchanger is used for recovering exhaust heat and a thermo-electric module is used for converting heat into electricity.This research work focus on optimization of the design of exhaust heat exchanger by removing the internal fins and changing the cross-sectional area of heat exchanger to minimize the problem of pressure drop.The designs of exhaust heat exchangers used in the previous research works recovers maximum heat from an engine exhaust but they have main problem of pressure drop or back pressure which can stops engine functioning. Computational fluid dynamics (CFD) is used in the simulation of the exhaust gases flowing inside the heat exchanger. The isothermal modelling technique is used in simulation process of the heat exchanger. The thermal simulation is done on heat exchanger to check the surface temperature, heat transfer rate, and pressure drop in three different driving cycles (urban driving, suburban driving and max. power driving) for a vehicle with 1.2 L petrol engine. The Rectangular shaped heat exchanger is used in exhaust manifold of internal combustion engine (ICE) is modelled numerically to recoverthe lost heat from engine exhaust. We find the Rectangular shaped heat exchanger with gradually increasing cross sectional area minimizes pressure drop and gives better temperature at the surface and increase the heat transfer rate