The dependency between income and happiness has been a major topic of concern in economics, psychology and policy formulation. Although the conventional utility theory has assumed that income has a positive relationship with wellbeing in terms of increased consumption and material security, empirical studies are beginning to indicate that the relationship is intricate, nonlinear, and situation-specific. This synthesis review article combines the wisdom of the utility theory and behavioural economics to come up with a holistic explanation of income-happiness nexus. The paper will utilize current empirical research and theories to explore the joint effects of the diminishing marginal utility, reference dependence, the loss aversion, the institutional contexts, and social comparisons on the subjective wellbeing. The review notes that the literature continues to experience puzzles such as the Easterlin paradox, asymmetries in responding to changes in income, and frustrated achievers, in which increasing incomes do not translate into corresponding increases in happiness. The combination of classical economic model and behavioural processes also helps the paper prove that income is not a relevant and predictable driver of sustained wellbeing. Rather, the results of happiness are determined by the stability of incomes, relative position, inequality, social participation, access to non-income determinants, including health, job quality, and social cohesion. The paper ends with a policy implications and future research directions which underlines the importance of having wellbeing-oriented policy frameworks that should not be based solely on the growth in GDP and income as measures of societal development