The National Education Policy (NEP) 2020 is a revolutionary change in India's educational system by placing Competency-Based Education (CBE) at the center of teaching and learning as a fundamental principle. In contrast to the conventional rote learning process, CBE is about the building of particular skills, abilities, and competencies that equip learners to succeed in the 21st-century knowledge economy. This study examines the position of CBE in the context of NEP 2020 and also examines its likely advantages and implementation challenges. The research points out how CBE resonates with NEP's vision for holistic, flexible, and learner-centric education. By focusing on critical thinking, creativity, problem-solving, and application-oriented knowledge, CBE is capable of bridging the gap between academic knowledge and employability skills. It makes personalized, outcome-based learning paths possible, thus serving a wide range of learners with different abilities and aspirations. The use of technology and digital tools further increases the outreach and efficacy of CBE for school as well as higher education. Concurrently, the paper also identifies substantial challenges that may prevent the true potential of CBE in NEP 2020 from being realized. These would be the requirement for massive teacher training, curriculum and assessment model redesign, infrastructure deficits, and reluctance to abandoning traditional examination-based systems. To these would be added equity concerns, digital divide, and monitoring mechanisms that are existing issues in effectuating successful and inclusive implementation. Based on an even-handed analysis, this paper finds Competency-Based Education to be of monumental potential for the changeover of Indian education to a skill-based, future-competent system. For this, however, success would hinge on the synergy and consensus efforts of policymakers, educators, institutions, and stakeholders in resolving the challenges piecemeal.