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1. It is for 500 rupees.
or
It is of 500 rupees. (I guess this one is correct)

and

2. His head was above water. (I guess this one is correct)
or
His head was over the water.
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(1) I don't understand the meaning of either. Is this indicating the price or cost of something? If so: 'it is 500 rupees' or 'it's priced at 500 rupees' or 'I'll sell it for 500 rupees'.

(2) You are right, if he is in the water.