Artificial Intelligence (AI) has rapidly evolved as a transformative force within global higher education, influencing teaching, learning, and institutional administration. Within India, the National Education Policy (NEP) 2020 envisions a technology-empowered, flexible, and inclusive education system. This research paper critically examines AI’s potential as a catalyst for transformative learning in line with NEP 2020’s vision. It analyses how AI-driven pedagogical tools foster innovation, personalization, and efficiency, while also evaluating the ethical, socio-economic, and pedagogical challenges emerging from its adoption. The study concludes that AI’s integration in higher education must be guided by human-centric ethics, teacher agency, and equitable access to truly fulfill the transformative vision of NEP 2020.