I thought so too. I was able to delete a Square Cash account a few years ago when I was in US and they gave the same explanation that we are required by law to maintain records for some time. However, they did delete my account.
I do not believe any such law exists in India for UPI accounts. I do believe however that Google has chosen not to allow deletion of GPay accounts for some reason other than the law.
Also GPay requires location access to work at all. So its not just payment information, it is location information along with payment information.