India's telecom regulator on Monday ruled against differential pricing for internet services, in a move that effectively bars Facebook's Free Basics initiative in the country.
The Free Basics initiative grants free access to a handful of selected sites, including Facebook, Wikipedia, the BBC as well as weather and health services.
But it was opposed by critics who argued it violates net neutrality by working with providers to direct traffic to selected sites.
"No service provider shall offer or charge discriminatory tariffs for data services on basis of content," the Telecom Regulatory Authority of India (TRAI) said in its regulatory order.
Further, no service provider could enter into any arrangement, agreement or contract with any person that has the effect of discriminatory tariffs for data, it said.
Violations will lead to a fine of 50,000 rupees (736 dollars) a day. The policy could be reviewed every two years or earlier as the TRAI deemed fit.
The TRAI had in December temporarily suspended Free Basics until its investigation determined whether the scheme could continue operating.
Last month, the regulator slammed Facebook's aggressively lobbying for the scheme. It had reportedly spent nearly 45 million dollars in promoting Free Basics with billboards and newspaper advertisements.
Monday's ruling marked a big win for proponents of net neutrality, hundreds of thousands of whom had petitioned against the Facebook scheme.
India, where less than a fifth of the 1.3 billion-strong population currently has access to the internet, was one of the several dozen countries in which Free Basics was launched last year.
The World Wide Web Foundation, set up by web inventor Sir Tim Berners-Lee, welcomed India's decision.
"As the country with the second largest number of Internet users worldwide, this decision will resonate around the world," programme manager Renata Avila said, adding the ruling follows a precedent set by Chile, the United States and other countries which adopted similar safeguards.
"The message is clear: We can't create a two-tier Internet - one for the haves, and one for the have-nots. We must connect everyone to the full potential of the open web."
"We call on companies and the government of India to work with citizens and civil society to explore new approaches to connect everyone as active users, whether through free data allowances, public access schemes or other innovative approaches," she added.
Facebook said it was disappointed with the order. Its founder Mark Zuckerberg had described Free Basics as a way of bringing internet to millions of rural Indians.
Addressing students in Delhi late last year, he said the programme was providing internet access to 15 million people in 24 countries and India would be crucial in getting the "next billion online."
"While disappointed with the outcome, we will continue our efforts to eliminate barriers and give the unconnected an easier path to the internet," Facebook said in a statement, according to broadcaster NDTV.