Will called function be still in transaction if we have a @Transaction in caller function?

Your transaction test class is not a Spring Bean that is why Case 1 does not work. Spring needs to detected that a method has @Transactional on it and it does that when spring registers the bean with the spring bean factory.

Transactional does nothing locally, it only has an effect when called from a different service. In other words, you have to leave your current context for transaction annotations to do anything. So calling method 1 is identical in both cases, Case 2 only does anything if method2 is called from another service.

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