In this work, we propose an improved form of Zhang's reversible data hiding technique in encrypted image.In the original work, average value of neighboring pixels is used for fluctuation calculation which fails to give good performance. In proposed scheme, to reduce the bit error rate a new function is calculated by summing difference from four neighboring pixels for measuring fluctuation. Moreover, modified calculation of fluctuation function is also proposed where border pixels are considered. The simulation results show that the performance of proposed method outperforms Zhang's and Hong's work. From the results, more information can be sent by using proposed system.