Skill based testing has become one of the key elements in the modern higher education systems to overcome the gap between theory and practice. As the focus on employability, practical skills, and the growth of the holistic learner emerges, universities and colleges are moving away with more and more content-based examinations and in their place, they are implementing more skillbased evaluative practices. This research paper is an analytical and theoretical research on the usefulness of the skill-based assessment methods in higher education. It discusses the pedagogical justifications supporting the use of skill-based assessments, investigates how these assessments can support student engagement and authentic learning and also how these assessments can support the development of critical thinking, creativity, communication, and professional competencies. Based on the constructivist and experiential learning theories, the study identifies the processes by which skill-based assessment can support reflective, collaborative, and application-based learning processes. Other challenges that the article describes in terms of implementation include readiness of the faculty, infrastructure limitations, reliability of assessment and suitability of rubrics. The conclusion emphasizes that, though skill-based assessment has the power to transform higher education, it will only work well with institutional backing, teacher education and being relevant to academic and industry standards.